Labour markets, human capital and inequality

Economic survey of Japan 2008: Reforming the labour market to cope with increasing dualism and population ageing


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The following OECD assessment and recommendations summarise chapter 6 of the Economic survey of Japan published on 7 April 2008.



Reforms are needed in the labour market to reverse increasing dualism…

Product market reforms should be accompanied by reforms in the labour market to increase efficiency and equity. Japan has experienced a sharp rise in labour market dualism, with the share of non-regular workers rising from 20% in 1994 to 34% in 2007. Firms are achieving employment flexibility through increased hiring of non-regular workers, who have temporary contracts, boosting their share of employment. In addition, non-regular workers are relatively inexpensive; the average hourly wage of part-time employees, who account for three-quarters of non-regular workers, is only 40% of that of regular workers, and they are exempt from some social insurance systems. The increasing dualism is creating a large segment of the population, concentrated among young people, with only short-term employment experience and limited opportunities to enhance their human capital, given that they do not benefit fully from firm-based training, which plays an important role in Japan. There are also serious equity problems, given that the difference in productivity between regular and non-regular workers is much smaller than the wage gap. The equity concern is magnified by the lack of movement between the two segments of the workforce, trapping a significant portion of the labour force in a low-wage category from which it is difficult to escape. Reversing the trend towards increased dualism requires a comprehensive approach. This should include enhancing the flexibility of regular employment, increasing the coverage of temporary workers by social security insurance schemes and upgrading training programmes to enhance the employment prospects of non-regular workers.  

The share of non-regular workers is rising rapidly


Source: Ministry of Internal Affairs and Communications.


Non-regular workers account for one-third of employment


1. Data is as of February until 2001 and as of the first quarter since 2002.
2. Total excluding executives.
3. The significant fall in the number of part-time workers in 2002 and rise in the other category is due to a change in the questionnaire. In these surveys, part-time workers are those so defined by their employers.
4. The category “other” includes those working on short-term contracts, dispatched workers (employed by temporary worker agencies), entrusted workers and other types of non-regular workers.
Source: Ministry of Internal Affairs and Communications, The Special Survey of the Labour Force, from 1984 to 2001 and the Labour Force Survey (Detailed Tabulation) since 2002.

… while promoting higher labour force participation of women

With women accounting for more than two-thirds of non-regular workers, reversing the trend toward labour market dualism as suggested above may help to boost female participation rates by providing more attractive job opportunities and encouraging flexibility in working arrangements. A higher participation rate of women would help buffer the impact of the decline in the working-age population, which is projected to fall by 9% in the decade beginning in 2007. The priority is to remove aspects of the tax and social security systems that discourage employment of secondary earners. In addition, private-sector practices, such as company allowances for spouses, the importance of tenure in setting wages and the use of age limits on potential new workers, may also discourage female participation in the labour force. The government should also reduce or eliminate aspects of the tax and social security system that discourage women from working full-time. Indeed, the proportion of women employed part-time, at 41%, is one of the highest in the OECD area. Improved access to childcare would be effective in boosting both female labour force participation and the fertility rate. Finally, efforts to promote better work-life balance, in part through stricter enforcement of the Labour Standard Law, may encourage greater female labour force participation.

A rising female participation rate would slow the decline in the size of the labour force
Labour force based on different scenarios for female participation1


1. The labour force covers the population between the ages of 15 and 64.
2. The participation rates for men and women remain at their current levels for each age group.
3. The female labour participation rates converge by 2030 to the rates for males for each age group.
4. The female labour participation rates converge by 2055 to the rates for males for each age group.
Source: National Institute of Population and Social Security Research, Population Projection for Japan (December 2006 version); Ministry of Internal Affairs and Communications, Labour Force Survey; and OECD calculations.  


How to obtain this publication                                                                                             

The Policy Brief (pdf format) can be downloaded in English and in Japanese. It contains the OECD assessment and recommendations.

The complete edition of the Economic survey of Japan 2008 is available from:


Additional information                                                                                                  


For further information please contact the Japan/Korea Desk at the OECD Economics Department at The OECD Secretariat's report was prepared by Randall S. Jones, Masahiko Tsutsumi and Taesik Yoon under the supervision of Stefano Scarpetta. Research assistance was provided by Lutécia Daniel. 




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