Policy Responses to Youth Employment Issues OHTA Souichi
2. Policies to increase company job offers to younger workers
2011-2012 JIIA Research Project: Policies Needed to Ensure Japan’s International Competitiveness
wishes through the internet, there are situations where many students apply to major companies and are eliminated at the entry screening stage. Companies receiving numerous applications are pressed to conduct preliminary screenings to some extent, taking school names, etc. into consideration. As a consequence, it is likely that there are an increasing number of students who apply to many companies but are not employed by any of them, and eventually get depressed from the constant rejection. In this sense, it can—rather paradoxically—be said that the fact that information and communication technologies have become so advanced nowadays is what is making it more difficult for students to find employment adequate to their level.
So far, we have a glance at youth employment issues. In the following section, I would like to state my opinions on how we should address these problems. For the sake of convenience, I will organize the discussion around the following main points: (1) policies to increase company job offers to younger workers, (2) policies to improve the skills of younger workers, and (3) policies to enhance the functions of the employment market, but these are needless to say mutually interdependent. That is, upgrading the skills of young people leads to companies offering more jobs to young people, and reinforcement of the labor market for young people of course yields the same result. Still, we will follow the aforementioned rough classification as it is convenient for moving the discussion forward.
For Japanese companies, hiring new graduates as regular employees is an “investment” of great significance. Since ordinary new graduates have no work experience, companies must request that they acquire skills, which accrues various costs accordingly, for example: (1) cost of constructing/maintaining training facilities, etc., (2) cost of covering damages due to mistakes made in the process of learning job functions, (3) wage costs of people in charge of training/education, (4) opportunity costs involved in time spent by experienced workers to cultivate fresh recruits, and (5) costs for providing wage levels above actual productivity. Thus, companies only employ young people when they believe that they can get a return on their investment in the form of experienced workers that can support the backbone of the company someday.
However, if such investment opportunities deteriorate, the companies are naturally disinclined to employ young people. In fact, as Ohta (2010) clarified in the positive analysis outlined in Chapter 4, companies tend to only hire young regular employees if future corporate performance can be expected.
If such arguments are correct, policies that provide companies with better long-term prospects are important for the employment of young people. For example, high corporate tax rates compared to international standards have served as a negative factor for domestic employment in recent years, as the globalization of corporate activities has been accelerating rapidly. In addition, allocating government expenditures fearlessly to future growth sectors to support basic research and development in these sectors is considered to promote the long-term growth of Japanese companies and contribute to the improvement of the employment environment of young people, albeit indirectly. Furthermore, implementing appropriate macro stabilization policies and promoting regulatory reforms will brighten the long-term outlook of companies.
Moreover, young people upgrading their qualifications will stimulate the companies’ willingness to employ young people. This point is examined in the next part. What must be discussed continuously in this part is the association with the employment system and employment laws. In particular, the major issues are the impact brought about by the promotion of the continuous employment of the elderly and employment security for regular employees. Recently, it has been suggested to require companies to ensure employment up to 65 years old for all workers who wish to continue working. Some even point out that we should eliminate the compulsory retirement age altogether and aim for an “ageless society.”
As the declining birthrate and aging of the population advance, it is necessary to make use of the skills of the elderly in order to maintain the vigor of the Japanese economy. On the other hand, this means
2011-2012 JIIA Research Project: Policies Needed to Ensure Japan’s International Competitiveness
that we run the risk of limiting the employment opportunities of young people while promoting the employment of elderly people.
In economic theory, the impact of the promotion of continuous employment of the elderly on the employment rate of young people comes down to the relationship of labor services provided by young people and the elderly in terms of productivity, respectively. If the labor services provided by young people are independent of those provided by the elderly in terms of productivity, there would be hardly any impact. On the other hand, if young and elderly people are substitutable, the promotion of continuous employment will suppress the employment of young people. Conversely, if they provide complementary services, the employment of young people will in fact be enhanced. In other words, it is safe to say that in cases where young and elderly employees are interchangeable, companies would consider that there would be no need to employ many young people because it already has skilled elderly workers, while in cases where young and elderly employees complement each other, companies would be more likely to consider employing young people actively, because cooperation between the elderly and the young is beneficial. In the end, the question boils down to “what are the actual relations between the two groups?” According to previous studies, there have so far not been any results that strongly indicate complementary relationships between young people and the elderly, whereas several studies have found substitutable relationships (Mitani 2001, Genda 2001).
If continuous employment of the elderly is facilitated in the future by an extension of the retirement age or similar methods, its impact on the employment of young regular employees is likely to become greater. The reasons for this are that, firstly, when more elderly become regular employees, elderly workers and young workers are highly likely to have substitutable relations, and secondly, the cost of employing regular employees increases unless significant wage structure reform is carried out.
Even if national promotion of continuous employment is inevitable, we must make sure to consider the impact on young generations very carefully before doing so. In addition, policies to heighten complementary relations between elderly and young people must be implemented. Politically supporting a mechanism where young people learn the skills of elderly workers and elderly workers are used to guide young workers can also be a countermeasure.
Another issue related to the employment system is how we should consider strong employment security for regular employees. The stance of securing the employment of regular employees even during difficult economic times has fulfilled a certain role of stabilizing the status of people who are
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already regular employees. However, if companies place too much importance on employment security for regular employees, they run the risk of having to bear large costs when hiring regular employees and are thus inclined to make use of irregular employee as a buffer for employment adjustment. In fact, analysis has shown that the ratio of short-term employment is high among companies where regulations on dismissal of regular employees are strict (OECD, 2004). Moreover, once people become irregular employees, they virtually never get the chance to be promoted to regular employment even if they wish to do so, and they run a significant risk of remaining stuck in positions of weak employment security and markedly lower wage levels than regular employees. This “polarization” of regular employees and irregular employees has been advancing in recent years, likely due to the strong employment security practices and legislation that protect regular employees.
Such problems can be addressed via two major options. The first option is to reform the employment security policy protecting regular employees so as to narrow the gap with irregular employees. In other words, companies would be able to create regular positions with slightly relaxed employment security and absorb irregular employees in those positions, thereby eliminating the gap. One of the possible specific measures to achieve this goal is allowing a certain degree of discretion on the company side when it becomes “necessary to downsize surplus manpower” while at the same time removing requirements to “fire/dismiss irregular employees” before regular employees. The gap between regular and irregular employees would shrink further if dismissal is only approved as valid after confirming that the “selection of dismissed workers is fair,” “adequate procedures have been followed” and prescribed “efforts to avoid dismissal” have been made.
The second option is to create new forms of employment contracts in order to solve the problems by way of “diversification.” This approach attempts to build “stepping stones” in the large gap between regular employees and irregular employees. In this category, one could consider an “employee system limited to service areas,” for example; employment contracts are cancelled for workers working in limited areas if business offices in the service areas are closed down. In this case, the level of employment security is substantially lowered in the sense that companies are not required to maintain employment through personnel relocation, as in the case of current regular employees. Instead, the companies can offer contracts to continue employment as far as pre-determined positions are available.
Once these more diverse human resource management methods become more widespread, the barrier between irregular employee and regular employees will be lowered, and the transfer of human resources from the former to the latter category is likely to be able to progress more smoothly than
2011-2012 JIIA Research Project: Policies Needed to Ensure Japan’s International Competitiveness
today. Such a direction should be welcomed by regular employees who feel the current working conditions to be excessively constraining as well.
Whichever option a company may take, the overall level of employment security will eventually become weaker. Under such conditions, it cannot be denied that there are advantages in terms of job creation, while at the same time there will be a risk of unreasonable and/or excessive dismissals by today’s social standards. One of the relaxation measures to remedy this is to implement a risk-related premium system in the unemployment insurance system to make companies to pay a social cost of dismissals “internally” (Cahuc and Zylberberg, 2006). From the point of view of the payment of employment insurance benefits as well, it would be beneficial to promote policies to improve the chances of escaping unemployment and job-less conditions through measures such as strengthening job-hunting incentives and imposing penalties for not trying to actively seek employment.
Consensus has not necessarily been reached in academic circles as to what degree the Japanese legal system actually suppresses new employment, but it is necessary to explore methods of improvement and discuss such issues openly without regarding them as taboo.