JILPT Research Eye
Sign of Change in Employment Portfolio

March 24, 2015
(Originally published on August 27th, 2014 in Japanese)

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Noboru OGINO

Director for Policy Issues, Research and Statistical Information Analysis Department


Regularization of employees expands by shift to open-ended contracts, conversion to regular employees, and introduction of "limited regular employees" category

A movement is becoming prevalent in Japan to regularize non-regular workers such as part-timers and contract workers. Following Starbucks Coffee Japan which was reported to convert its 800 contract workers to full-fledged regular employees, UNIQLO First Retailing (a manufacturer and retailer of casual wear) announced that the company would shift some 16,000 part-timers to "area limited" regular employees (whose terms of employment are limited in regard to geographical area of duty stations and tasks to be assigned) within two to three years. Furthermore, it is reported that IKEA Japan, a giant furniture manufacturer, is to offer open-ended contracts to its part-timers, and that the Bank of Tokyo-Mitsubishi UFJ would shift its contract workers with more than three years of service to open-ended contracts.

In light of these trends, our department of JILPT conducted a hearing survey with companies and labor unions, and has introduced some examples of revisions made in personnel management system for non-regular employment in our monthly magazine titled "Business Labor Trends". In April this year, All Nippon Airways (ANA: an airline company) converted 1,700 contract cabin crew to regular employees. The primary objective of the shift was to improve customer service. One can find traits common to companies such as Japan Post Holdings (a postal service company), CO-OP Sapporo (a consumers’ cooperative), FANCL (a manufacturer of cosmetics and nutritional supplements) and the Imperial Hotel that they have already incorporated a category of "limited regular employee", which was recommended as a policy in a report of "Expert meeting for diffusion/expansion of diversified regular employment" compiled by the Ministry of Health, Labour and Welfare on July 30. The move to revise the employment portfolio has already started by adding the status of "limited regular employees" which provides open-ended contracts but limits the area of duty stations and tasks to be assigned, rather than just dividing two employment status as regular (open-ended contract) and non–regular (fixed-term contract) workers.

1 out of 4 companies expects an increase in "employees with open-ended contract"

As background for the revisions of personnel management systems concerning non-regular employment such as shift to open-ended contract, conversion to regular employment, and introduction of limited regular employees as described above, one would see some compound factors including current labor shortage, review of management/personnel strategies, and response to on-going labor law reforms such as Labor Contract Act and so forth.

According to a survey on "the utilization of elderly workers and fixed-term contract workers after the legal reform" which was conducted by JILPT in 2013, it is clear that many companies show positive attitudes on the shift of labor contracts from fixed-term to open-ended.  In response to the revised Labor Contract Act, more than 40% of companies which employ full-time fixed-term workers, answered that they would shift such workers into some forms of open-ended contract.

JILPT’s press release on July 23 entitled "A survey on human resource management" reveals that more than 1 out of 4 companies (i.e. 26.6%) expected an increase in the share of "employees with open-ended contracts" within next 5 years.

Nearly 20% of companies are positive towards introduction/expansion of "limited regular employees"

The survey also asked about plans for the introduction/expansion of “diversified regular employees” including limited regular employees. Nearly 20% (19.1%) of companies responded that they would “possibly examine the creation/expansion of new categories for diversified regular employment”, and for companies with more than 1,000 employees, its share exceeded 30%.

The reasons most frequently cited for creating/expanding new employment category were the revised Labor Contract Act (44.3%), a sense of crisis to secure workforce along with Japan’s declining birth rate and the aging population (42.7%), a necessity to secure competent human resources from among non-regular employees (41.7%), and having room for hiring diversified regular workers (not necessarily full-fledged but with some limitations on duties or treatment) (41.7%) (See figure below).

Figure:  Reasons for creating/expanding diversified regular employeesFigure

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"Limited regular employees" as absorbents of workers after conversion to open-ended contracts

The Imperial Hotel has already experienced a flow from conversion of contract workers into open-ended contracts to introduction of “limited regular employees”, by going through in-house system reforms.

After having shifted all of the locally limited contract workers (area employees) into open-ended contracts in 2011, the company upgraded 550 area employees to regular employees with limited area of duty stations (Tokyo and Osaka) in April 2013.  This reform of personnel management system is not influenced by legal reforms but results from labor-management consultation, which is considered to be rational in managerial view. The main objective was to raise motivation of contract workers and to improve customer service. 

Companies which created new categories starting April 2014 are Japan Post Holdings, CO-OP Sapporo and FANCL. Japan Post Holdings introduced a “(new) general staff category” and promoted 5,000 contract workers on monthly salary basis to this category. CO-OP Sapporo created “area employees category” and about 700 workers were converted into regular employees in June. These two cases adopted regular employees’ category with “limited area of duty stations”, but FANCL’s “area limited employees” combines limits on both geographical area of duty stations and tasks to be assigned. These changes also have common background that is the need to secure and foster human resources in order to upgrade customers’ satisfaction. 

Our study also found several other companies which consider possible introduction of “limited regular employees” as a category designed to absorb contract workers after being converted to open-ended contracts.  These cases of leading companies in each industrial sector are said to support the results of our afore-mentioned survey. 

Redefinition of "regular employees" required– from dual structure (open-ended/fixed) to a creation of 3rd category

In the growing labor shortage in Japan not only in restaurant and retail businesses but in wide range of sectors, new trends in employment management such as shift to open-ended contract, conversion to regular employees and introduction of limited regular employees’ category would bring medium and long-term positive effects in securing and fostering human resources. Moreover, stabilization of employment through diversification of employment system may improve labor productivity and contribute to the growth and revenue increase for enterprises.

In addition to media coverage, our hearing survey and questionnaires show a sign of change in employment portfolio, that is, an emergence of three-pronged employment system adding new category of open-ended or limited regular employees, instead of dual structure based on “non-regular employees” (fixed-term contract workers such as part timers, contract and temporary workers), and full-fledged “regular employees” (open-ended contract). In this regard, one can point out that these changes in employment portfolio are designed to take place with gradation or step-wise introducing systems of conversion between different employment categories as well as balanced treatment among them etc., rather than pushing ahead distinct classification of 3 different categories. On the other hand, these new trends will require redefining what “regular employees” are―whether those with open-ended contracts can be called “regular employees” or not.

In any case, a sign of change in employment portfolio is in sight along with intensified competition to secure human resources under current shortage of workforce in Japan.