Proposing fresh legislation limiting overtime, potentially to 45 to 60 hours a month, the Japanese government is taking aim at the workforce’s reputation for long hours.
23 percent of companies have workers putting in more than 80 hours of overtime monthly and workers at 12 percent of companies work more than 100 hours of overtime monthly, found the government’s first study on karoshi, or death by overwork, released in October and the proposal comes after that release.
But there is skepticism about the free time that the Japanese workers would get would be used by them to consume more or help bolster a sluggish economy even as they stand to gain as much as an additional 60 hours a month of leisure.
The actual proposals appeared watered down and he didn’t expect much positive economic impact, Kwok Chern-Yeh, head of Japanese equities at Aberdeen Asset Management, said recently.
“Even if the Japanese work less, it won’t improve spending,” he said. “Quite the opposite, it will mean less pay at a time when wages are stagnant and purchasing power is being eroded by a weak yen. Added to this is a looming shortage of labor.”
Cutting its economic growth forecasts for Japan to 1 percent in 2017 and 1.1 percent in 2018, from 1.1 percent and 1.4 percent, respectively, in a report last month, Deutsche Bank came to a similar conclusion.
A negative feedback loop would be spurred as corporate sales and profits also fall as decline in working hours would hurt household income and spending by the decline in working hours, the bank expected.
The notion that the extra free time would spur more consumption was not expected by Deutsche Bank.
A similar experiment was done in South Korea where a five day week shift from a six day shift was introduced from 2002.
But introducing a five-day workweek didn’t seem to affect leisure consumption in South Korea significantly, found a 2012 paper by Sooyoung Sul and MoonJoong Tcha, which looked at data from 1985-2007.
Demand for leisure goods and services was tied to income and price and were generally treated as luxuries, the study found.
However, spending on tobacco was one thing that got reduced due to shorter working hours.
South Korea’s workers, particularly heavy smokers, were less likely to light up after their work hours decreased, found a paper published in 2013, then revised in 2015, by Taehyun Ahn, an associate professor at Sogang University’s School of Economics.
Just 35 percent of job changers received higher pay, with a similar number getting a pay cut and just 5 percent of Japanese employees switched jobs last year, Capital Economics noted in a report this week.
A pension tax system which rewards long spells with one employer and Japan’s lifetime employment model, which deters job switching were pointed to by Capital Economics.
“With the lifetime employment model preventing employees from switching jobs in search of higher pay, we think that wage growth will continue to fall short,” the report said.
However on the issue of how changes to Japan’s overtime rules would impact the economy, others were a little more optimistic.
He believed less overtime would only be good for Japan’s economy, said Yoshihisa Yamada, the chief financial officer at Japanese ecommerce player Rakuten.
“People will be more focused on being productive as opposed to just spending a lot of time in the office,” he said.
(Adapted from CNBC)