(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000606720001-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: January 12, 2017
• Document Release Date: March 21, 2011
• Sequence Number: 1
• Publication Date: October 20, 1986
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
20 October 1986
Japan: Would Labor's Agenda Expand Domestic Demand?
Summary
The Maekawa Commission's call for increased wages and a shorter
workweek to foster expanded private consumption and lessen dependence
on exports adds some impetus to longstanding demands of the Japanese
labor movement. Nonetheless, the recommendations are unlikely to fare
well in the present economic and political climate. With union
membership down, with labor's traditional political allies--the opposition
parties--suffering major losses in recent elections, and with the economy'
suffering from the strong yen, the labor movement is poorly positioned to
push for improved benefits. Indeed, we believe Tokyo's budget austerity
and the sluggish economy will keep public- and private-sector wage hikes
small during the next 18 months. Over time, however, changes in popular
attitudes, as well as political and some business support, should
encourage adoption of a shorter workweek. Even so, such a shift would
do little to stimulate domestic spending and imports unless combined with
measures to increase after-tax incomes and reduce the need to save for
major purchases.
This memorandum was prepared by (Office of East Asian Analysis.
Information available as of 20 October 1986 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Japan Branch, Northeast Asia
Division, OEA,
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Demands for higher wages and a shorter workweek have been on the Japanese
labor movement's agenda for years. Last spring's Maekawa report highlighted both
goals in its list of recommendations for turning growth inward, but was pointedly short
of specifics on both timing and implementation. The report suggested only that wages
and salaries rise at a faster pace and that the workweek be shortened, calling on Tokyo
to take the lead in making a five-day workweek standard for government employees and
for the financial institutions regulated by the Finance Ministry.
Organized labor in general views the shorter workweek as the more pressing
concern. Japanese manufacturing workers put in an average of 500 more hours per
year than their counterparts in Western Europe and 200 more than workers in the United
States, according to the Labor Ministry's 1985 White Paper (see figure 1). Union officials
argue that the present 48-hour workweek encourages criticism from labor organizations
in other industrialized countries, who complain that the long hours give Japan an unfair
advantage in trade by increasing weekly output per worker and thus reducing costs.
The major labor federations--Sohyo, Domei, Churitsuroren, and Shinsanbetsu--have laid
down specific proposals for a 40-hour workweek and limited overtime. They have also
called on employers to encourage workers to make full use of vacation time.
Nonetheless, not all in the labor camp favor a reduction in hours. Japanese labor
experts note that older workers, in particular, have been schooled in the virtue of hard
work and do not want a change. Moreover, some workers fear reduced official work
hours could lead to cutbacks in overtime. According to the US Embassy in Tokyo,
full-time workers depend heavily on overtime earnings to maintain their standard of
living.
Japanese workers also do not agree on the wisdom of pushing for substantial
wage increases. Older male employees--now reaping benefits from the large wage
gains made in the 1960s and 1970s--are satisfied with present salaries, according to
Embassy Tokyo. Although annual wage settlements are becoming less generous,
seniority-based pay and semiannual bonuses help to compensate for the reduction (see
figure 2). Moreover, some employees fear that hefty wage demands--especially during
the current economic slowdown--could cause bankruptcies, forcing up Japan's
traditionally low unemployment rate.
Even with full union backing for the Maekawa Commission proposals, the labor
movement would have difficulty convincing management to accept its demands. In
contrast to the 1960s, when a labor shortage gave Japanese unions a strong hand, the
organized labor movement is both politically and economically weak. Cutbacks in the
steel and shipbuilding industries have debilitated unions in these industries. Once the
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F;gure 1
TRENDS IN ACTUAL HOURS WORKED
IN MANUFACTURING INDUSTRY%
42
36 I
1975 76 77
79 SS
82 83 1984
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Figure 2
JAPAN: WAGE TRENDS
1971-64
30,
1971 72 73 74 75 76 77 71 79 80 11 12 13 19$4
WAGES
NOMINAL
REAL
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traditional bedrock of the labor movement and the pacesetters for labor's wage
demands, these unions can no longer effectively represent workers' interests. Unions in
the high-profit and growth sectors, such as telecommunications and electronics, have
hesitated to take the leadership reins, preferring to bargain with management
independently of the weaker unions, according to Embassy Tokyo.
Final wage settlements throughout the 1980s spotlight labor's slide, with'
settlements--especially after adjusting for inflation--consistently lower than in the past.
The average rate of increase has not exceeded 8 percent since 1977, and in the last
three years the rates have been at historic lows, hovering around 5 percent. The small
wage settlements reflect, in our view, a loss of union power as well as the slow rates of
economic growth and inflation since the late 1970s.
Union membership also continues to slip. Statistics published by the labor
movement's own think tank reveal membership fell from 34.5 percent of Japan's work
force in 1979 to 28.9 percent in 1985. Although the overall work force is growing, many
newcomers are part-time or nonpermanent employees, who are not eligible for union
membership. Those who remain within union ranks are increasingly dissatisfied.
a majority of union members
believe the labor movement does a poor job of representing their interests. The rank
and file is disillusioned with ideological squabbling among labor leaders and with their
inability to work together. For example, expectations for Zenmin Rokyo--the
organization established with the goal of unifying all private non-Communist
unions--have dimmed, according to US Embassy officials in Tokyo. Although Zenmin
Rokyo was recently inaugurated as a full-fledged national labor organization, labor
leaders refuse to cooperate under its umbrella because key issues, such as affiliation
with the Western-oriented International Confederation of Free Trade Unions, remain
unresolved.
Finally, the influence of labor's chief political allies--the opposition parties--is
waning. The opposition's dismal showing in the July Diet elections suggests the
Japanese public is increasingly alienated by the leftist bent of both the unions and the
Japan Socialist Party. Part of the Socialist's poor showing--a loss of 25 seats--can also
be attributed to a withdrawal of support by the more moderate unions, which are
frustrated with the party's ideologically driven policies, according to the US Embassy in
Tokyo.
Tokyo Unlikely To Embrace Higher Wages...
In view of the labor movement's declining influence, we expect government
backing will have to be the key to moving the Maekawa Commission's proposals
forward. Such backing will be slow to materialize, however. According to the US
Embassy, Finance Ministry officials oppose larger wage increases in the private sector,
believing they would trigger a recommendation from the National Personnel Authority
that the public-sector unions--paid out of the national budget--receive corresponding
gains. Such a recommendation would run counter to the government's
budget-balancing policies.
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We expect the yen appreciation to act as a further deterrent to movement on
private-sector wage hikes. Despite Tokyo's talk of reducing the economy's dependence
on exports, neither government nor business officials are ready to see Japanese industry
lose international competitiveness. As a result, increasing wages when a strong yen has
pushed up the dollar price of many Japanese goods will be an unpopular option.
Indeed, some major exporters suffering a substantial drop in profits over the next few
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Recommendations for a shorter workweek will be easier to handle. The Ministry
of Labor is the leading government advocate of reducing the workweek, and officials
from the Ministry of International Trade and Industry and the Economic Planning Agency
recently have spoken out in favor of the idea as well. A private advisory council to the
Labor Ministry is studying the feasibility of amending the Labor Standards Law to
shorten the legal workday and increase minimum paid vacation. The council had earlier
recommended a five-day workweek, although it retreated from a target date of 1985 for
nationwide implementation. Admittedly, the Labor Ministry's task is difficult; amending
labor laws is a lengthy process involving negotiations among several ministries and
eventual submission to the Diet, where opposition from Dietmen who represent business
interests could pose problems. Tokyo is apparently taking the first step with its own
employees. Press reports note that government workers will get a second Saturday off
each month by early next year.
Despite the delays, we believe changing attitudes and economic realities will
push Japan toward adopting a shorter workweek. Media polls indicate growing public
support--especially among the young--for fewer working hours and more leisure time.
According to the Japan Productivity Center, younger workers are not as company
oriented as their elders and want more time with their families.
The popularity of recent token gestures by Prime Minister Nakasone adds to the
evidence of changing perceptions. The media gave widespread coverage to Nakasone's
statements that he personally supported reduction of the present 48-hour workweek.
The Prime Minister also declared the third week of August an unofficial summer holiday,
and, indeed, surveys show that the Japanese are taking more summer vacation days.
The Education Ministry's plan to reduce by 1992 the school week from six to five days
will add to the clamor for a shorter workweek by expanding the opportunities for family
The present economic slump could also push Japan toward shorter hours. A
Labor Ministry survey indicates Japanese corporations are cutting back production and
the amount of overtime offered. If production continues to lag, many firms may prefer
shortening employees' hours rather than resorting to layoffs. Some businesses are
already experimenting with a shorter workweek. Japanese banks now give employees
every other Saturday off, for example.
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Impact on Domestic Demand
Although a gradual but definite move to shorter working hours in the next few
years seems likely, the impact on Japan's international competitiveness and on workers'
spending patterns will depend in large part on whether the reduced hours are
accompanied by the same or lower earnings. If wages are cut back along with hours,
production costs will not necessarily rise, and Japanese workers might not increase their
spending.
Over the longer term, reforms such as a shorter workweek and an increase in
labor's share of national income will have a greater impact on domestic demand if they
are implemented as part of an interrelated package of measures--such as the Maekawa
recommendations--rather than as separate steps. Workers, for example, may have a
difficult time increasing spending in their newly won leisure time if their tax liabilities
keep rising and they remain concerned about the need to save for housing and
retirement. This argues for timely implementation of the complete Maekawa
package--tax reform, public works, measures to encourage housing construction,
agricultural liberalization, and wages and hours reforms--to gain the full, synergistic
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SUBJECT: Japan: Would Labor's Agenda Expand Domestic Demand?
Nicholas Riegg, Department of State
Cdr. (Ret.) James Auer, DOD/ISA/EAP
Joseph Massey, USTR
Bob Park, Intelligence Liaison, USTR
Donald Gregg, Office of the Vice President
Thomas Hubbard, Department of State
William Brooks, Department of State
Chuck Kartman, Department of State
DIA/DB-2D
Defense Intelligency Agency
se Intelligency Agency
Stephen Danzansky, National Security Council
Louis Pugliariesi, National Security Council
Byron Jackson, Department of Commerce
Maureen Smith, Department of Commerce
Doug Mulholland, Department of the Treasury
Richard Woodworth, Department of the Treasury
Robert Reis, Department of State
National Security Agency
Central Intelligence Agency
1 - Director, DCI/DDCI Executive
1 - NIO/EA (7E62)
1 - NIO/Economics
1 - C/PPS/DO (DO 1)
1 - C/EAD(5E18)
1 - OGI/ECD/TI
1 - OEA/NEA/Korea Branch
1 - OEA/NEA/STI Branch
1 - OEA/NEA Division
1 - OEA/China Division
1 - OEA/SEA Division
D/OEA (4F18)
C/Production/OEA
FBIS Analysis Group
DDI (7E44)
Senior Review Panel (5G00)
PDB Staff (7F30)
C/PES (7F24)
CPAS/ILS (7G50)
CPAS/IMC/CB (7G07)
NIC/AG (7E47)
LDA/EAD/AB (1 H 18)
DDO/EA Division
DDO/EA,^ (5C45)
Staff (7D60)
25X1
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1 - Chrono
1 - Branch
DDVOEA/NEA/Japan,
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