Reforming the Labour Market in Japan to Cope with Increasing Dualism and Population Ageing

The proportion of non-regular workers has risen to one-third of total employment. While non-regular employment provides flexibility and cost reductions for firms, it also creates equity and efficiency concerns. A comprehensive approach that includes relaxing the high degree of employment protection for regular workers and expanding the coverage of non-regular workers by the social security system would help to reverse dualism. Given that non-regular workers receive less firm-based training, it is also necessary to expand training outside of firms to support Japan’s growth potential, while enhancing the employment prospects of non-regular workers. Reversing the upward trend in non-regular employment may also encourage greater female labour force participation, which is essential given rapid population ageing that is already reducing Japan’s working-age population by almost 1% each year. Expanding childcare facilities and paying more attention to work-life balance would also boost female employment, while also raising Japan’s exceptionally low birth rate.