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RENGO's Views on and Counterarguments to the 2010 Report of the Committee on Management and Labor Policy of Nippon Keidanren (Japan Business Federation)

1. Overview

Nippon Keidanren released its Report of the Committee on Management and Labor Policy (hereafter, the Report) on January 19, 2010. In spite of the enormous changes that have taken place in the basic requirements and conditions for the further growth of companies and society, the Report is mired in micro-level logic throughout and fails to go beyond the traditional argument for cutting total personnel expenses.
Would it not be appropriate for Nippon Keidanren, as an organization of managers, to show a willingness to tackle and overcome the economic and social stagnation that Japan faces, such as deflation?
While recognizing the role of companies in the distribution of added value, the Report maintains that “There is a need for a dialogue, in line with the real situation, on whether or not to maintain the wage curve” in wage negotiations. Furthermore, it proposes a review of the systems such as scheduled wages that have been established over a long period of time between labor and management. Changing systems like these could lead to a destabilization of labor conditions and weaken the relationship of trust between labor and management. Thus, such moves cannot possibly gain the confidence of society.

Employers have traditionally maintained an attitude focusing on holding down total personnel expenses and implementing cost reductions based on the simplistic idea that cost cuts are equivalent to strengthening international competitiveness. It should be noted that this has led to a vicious cycle at the macro level of wage stagnation, leading to anxiety about life and employment, and in turn causing sluggish consumption accompanied by a lack of demand, resulting in a deterioration of business.
The business stance of turning fixed costs into variable costs has also led to an increase of non-regular workers and a widening of social disparities to a degree that can no longer be overlooked. In addition, the problem of employment among youth and the working poor has even become a social issue.
On the other hand, on the shop floor, the quality of employment has deteriorated, problems involving a lack of skilled personnel have surfaced, skills are no longer being passed down, and teamwork has suffered, leading to secondary effects including a degradation of product quality, causing ironically a decline in competitiveness. It can be said that the attitude of looking at personnel expenses simply as costs without adopting a long-term point of view, in combination with the government’s neoliberal economic policy, has triggered “long-term stagnation that has lasted over 20 years.”

What management needs to adopt is not an attitude that gives priority to micro-level business logic such as “international competitiveness” and “cost cuts” (meaning cuts in personnel expenses) but rather efforts, based on management’s responsibility, to allay workers’ anxiety concerning employment and their future as workers. Otherwise there will no future for company management and it will be impossible to regenerate Japan.
We are no longer in an era where the decisive factor in strengthening competitiveness is cutting costs. In order to cope with the emerging economies, many in Asia, which are steadily strengthening their capability, it is critical to enhance added-value competitiveness rather than cost competitiveness. To do so, companies must have innovative power and strong technological development capabilities. It is the efforts of real people on a long-term rather than short-term scale that result in the capability for new innovation and technological development. This is what makes sustainable development possible.
Nippon Keidanren should exercise leadership toward its member companies concerning the importance of stabilizing employment and working conditions in the long term, actively investing in people, and properly nurturing “human resources.” Otherwise, their competence as an organization of employers will have to be called into question.

At the same time, we do need to reconsider Japan’s employment structure. It is necessary to point out that behind the problems of widening disparities and the increase of non-regular workers, which have become major social issues, is the approach of so-called “employment portfolios” proposed in 1995 by the Japan Federation of Employers’ Associations, which is now part of Nippon Keidanren. This report was a statement aimed, from the perspective of employers, at eliminating the practice of long-term employment, which had been maintained until that time. With this as a turning point, a step toward the increase of non-standard employment was taken.
The absence of any self-reflection whatsoever on the attitude which led to the excessive growth of non-regular workers thus far and the ironic heaping of praise on such actions, based on claims that “The diversification of employment has brought merits to the labor market” needs to be condemned as an expression of the one-sided logic of employers.
Further, it is deplorable that they adopted the attitude of refusing to accept responsibility as an involved party, stating that the rapid increase of the non-regular workers was partly caused by the fact that “The needs of labor suppliers and users coincided” and that “Tertiary industry, which traditionally has employed many non-regular workers, has expanded.”
Employers should share an appropriate portion of the burden for rectifying the problem of the widening disparities in society. In reference to the “relationship of trust between labor and management,” they should promote a switch to regular workers and improve the treatment of non-regular workers in order to restore the Japanese-style employment system based on the principle of long-term employment. They should, as representatives of the business community, communicate their way of thinking to the society based on the role of management, making proposals, for example, to the government on the future design of Japan, new needed industrial structures, etc.

RENGO believes that we must act to prevent any further decline of the wage level in the 2010 Spring Struggle for a Better Life in order to put the economy back on a recovery track and protect the livelihoods of workers. To achieve this goal, we will work to rectify the growth pattern that relies excessively on overseas demand and rectify the skewed distribution pattern that favors companies. We will also raise the standard of living by turning non-regular workers into regular workers and improving their treatment and raising the minimum wage level, thereby rectifying the employment structure.
The Japanese economy has all the elements required to realize mid- to long-term growth, such as capacity for technological development and international competitiveness. What is required now is to take active measures toward stable growth, improved lives for the people, and an economic society that is in harmony with the world. If companies and the government promote a policy for increasing domestic and foreign demand from a medium- to long-term point of view, the economy will surely recover.

Next, we will present our views on specific points in the Report, based partly on the above-mentioned points of view.



2. Concrete Views

(1) Maintenance of the wage curve and review of the system of annual wage hikes

The Report not only states that “It is necessary to conduct a dialogue, in line with the real situation, on whether or not to maintain the wage curve” but argues that “Even in cases where added value increases, the basic principle should be to reflect temporary business fluctuation based on short-term fluctuations of supply and demand into bonuses and one-time allowances” and that “Many companies believe it is difficult to raise the base wage,” taking a thoroughgoing position of holding down wages. If such moves are strengthened without giving due consideration to the ill effects of controlling wages, it will be surely make personal consumption even more sluggish and further exacerbate the deflation spiral.
The Report further states that the system of annual wage hikes is premised on continued high growth and that “Under the system and practice where scheduled wages automatically increase from the previous year, control over total personnel expenses is inadequate.” Let us point out that the funds used for annual wage hikes are basically internally generated and do not directly lead to a rise of personnel expenses. Moreover, since this system is the foundation of the personnel management system, arguing for a review with the aim of cutting costs is a serious problem undermining the trust between labor and management. The arguments in favor of reviewing the system of annual wage hikes, implying that any measures are needed to hold down total personnel expenses, cannot be condoned.

(2) Improving the treatment of non-regular workers

Although the Report speaks approvingly of the diversification of employment, when it comes to labor conditions, it maintains that “A careful response should be made after fully considering whether such issues can be solved through individual labor-management relations.” This seems to demonstrate a lack of reflection as a party responsible for the increase in non-regular workers.
Today, as the labor market undergoes change, it is essential for labor and management to work for equal treatment. We look forward to seeing constructive proposals from employers.
With regard to the idea of equal pay for work of equal value, the Report states that with the precondition that “the same added value be brought to the company taking into consideration the factor of future use of personnel,” equal treatment should be provided. We consider this, in reality, to be equivalent to denying the principle of equal pay for work of equal value.
The Report also states that the idea that workers who on the surface seem to be engaged in the same work should receive the same treatment is problematic. We must say that the Report shows a lack of understanding of the intent of the revised Part-time Workers Act.

(3) The labor share

Up until last year, when the labor share was low, the employers’ side maintained that “The labor share should not be the basis for deciding wages.” However, when the ratio rises, like it has done this year, they claim that the distribution is fair. Thus, their arguments change depending on the situation. The same can be said about the “productivity standard principle,” under which wage raises are kept below the rise in productivity.
The Report also maintains that RENGO’s position that “The labor share has not risen excessively” is based on a misunderstanding of reality. However, this is because the two sides use different calculation methods. The employers’ side uses sales as the denominator. If this method is used, then the labor share rises naturally during recessions. On the other hand, RENGO’s calculations are based on GDP. When the trend in this figure is examined, it is clear that the labor share dropped sharply after the present economic expansion period began, and has hovered at a low level with little fluctuation since then. While similar statements can be found concerning added value, here also, Nippon Keidanren and RENGO calculate the values in different ways.

(4) Dividends on equity and executives’ remuneration

The Report states that “The payout ratio, an indicator of profit sharing with stockholders, is at a low level” and “Which of the stakeholders will receive priority in the distribution of added value depends on the actual situation and level of growth of the company in question,” holding firm to the principle of shareholders first. Here, a negative attitude toward the rectification of the skewed distribution can be observed. It is clear that the failure of companies to distribute the fruits of growth to workers has led to the present serious problem of widening disparities. This attitude is deplorable.
The Report also states that “Some have criticized the fact that profits were distributed to the stockholders during the business expansion period,” but RENGO has argued that while the distribution to the workers was kept at a low level, the distribution to the stockholders and executives led to the expansion of the disparities. We have not argued in favor of increasing the labor share or raising wages by cutting the share to stockholders.

(5) Minimum wages

The Report takes a very negative stance toward raising minimum wages, saying: “Constant improvements in productivity at small and medium enterprises are a precondition for increasing minimum wages” and “The effect of an increase in personnel expenses would be insignificant for small and medium enterprises that face a very severe management environment, and would have an enormous impact on new employment and employment stability, making it impossible to ensure the feeling of security of working people.”
The role of the minimum wage system, however, has become ever more important considering the fact that people with an annual income of 4 million yen or less now account for close to 60% of all working people. It is necessary to continue to raise the level of Japan’s minimum wages, which have long been kept low.
With regard to the specified minimum wage (by industry), the Report this year again repeats the traditional argument that “The specified minimum wage system is superfluous, and should be abolished.” This ignores the intent of the revised Minimum Wage Act, and amounts to a negation of labor-management autonomy.

(6) Work-life balance

The Report states, “We need to put our minds together to review ways of working, particularly considering that total actual working hours have decreased.” We concur with this way of thinking. In order to rectify the situation of long working hours, it is important for companies to properly regulate working hours and deploy personnel properly given the amount of work and the production plan of the business project. By doing so they should show that they are making serious efforts to rectify long working hours. We expect that Nippon Keidanren will demonstrate leadership in this regard.
It is unfortunate, however, that the work-life balance advocated by employers is based on the “realization of work-life balance by raising productivity” and is seen only as a means to hold down wages.
The Report also states that “It is important to develop a policy from the viewpoint of promoting efforts by individual labor and managements without leaving the issue to legislation,” but there is a need for efforts including legal measures in areas such as the improvement of work rules.

(7) The wage premium for overtime work

With regard to the requirement to make efforts to raise the overtime premium in accordance with the amendment to Labor Standards Act, the Report states that “It is necessary to take note of the effects of raising the overtime premium on total personnel expenses.” It should be said that this argument comes from a lack of understanding of the intent of the amendment of the law. The general tendency in the world is: a 50% overtime wage premium, and a 100% premium for holiday work. The premium in Japan should be increased in order to raise the appraisal of the labor value too.

(8) Employment among youth

The ratio of new graduates in the spring of 2010 who had obtained informal job offers by December was 73.1% for university graduates and 68.1% for senior high school graduates. Both these figures were the lowest since such statistics have been compiled, and the rate of decline was the largest ever, calling for an emergency response.
The Report also states, “Individual companies are expected to make efforts to hire as many newly graduates as possible including through year-round recruiting.” We would like to put our faith in the sense of social responsibility of companies. The problem of youth employment is a social issue. We believe that constructive discussions between labor and management are necessary on where and in what way to create jobs concretely, followed by talks with the government to hammer down the details.


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