Some Japan PM Hopefuls Aim to Simplify Hiring and Firing Processes

By Makiko Yamazaki and Kentaro Sugiyama

TOKYO – At least two candidates competing to become Japan’s next prime minister are focusing on a significant and sensitive issue in the country: labor market reforms that would ease the hiring and firing of workers.

Shinjiro Koizumi, the 43-year-old son of former Prime Minister Junichiro Koizumi, and Taro Kono, currently serving as digital minister, have both advocated for the relaxation of Japan’s traditionally rigid labor regulations. These rules, emblematic of Japan’s "salary-man" corporate culture, have existed for decades, tracing back to a time when the nation’s post-war economy was booming, and lifetime employment was the norm.

However, these inflexible labor laws have recently come under scrutiny for hindering labor mobility from stagnant sectors to areas experiencing growth, particularly in a tight job market.

Koizumi remarked this month that "the ongoing labor market reform is missing the crux of the issue, which is the revision of dismissal rules." He emphasized that an effective growth strategy would involve creating a system that supports labor shifts towards startups and small businesses in burgeoning industries. If elected as party leader, Koizumi has pledged to introduce a labor reform bill next year.

Meanwhile, Kono has proposed establishing a monetary compensation framework for workers who face dismissal, suggesting that this measure could enhance flexibility in the labor market.

Overhauling dismissal regulations is a politically delicate matter in Japan, having been postponed multiple times in the past with minimal progress. International organizations like the Organisation for Economic Co-operation and Development (OECD) have long attributed Japan’s low labor productivity and high income disparity between regular and non-regular workers to the lack of employment flexibility.

Japanese workers, on average, remain with their employers for 12.3 years, compared to just 4.1 years in the United States and 9.7 years in Germany. A Gallup poll indicated that only 6% of Japanese employees feel engaged in their jobs, significantly lower than the 23% global average.

The legal framework surrounding dismissals is often seen as ambiguous; however, judicial precedents have established strict criteria that companies must meet to justify layoffs. These rules typically require companies to demonstrate genuine economic need for workforce reduction and to show that all possible alternatives to dismissal have been explored.

"The main issue is that these rules are based on judicial precedents that are decades old," stated labor lawyer Kotaro Kurashige.

The Liberal Democratic Party, which holds a majority in parliament, is set to elect a new leader on September 27, with the winner succeeding outgoing Prime Minister Fumio Kishida. A record nine candidates are contesting in this election.

As in previous instances, the proposals from Koizumi and Kono have generated considerable backlash on social media and from labor unions, with some conservative lawmakers expressing concerns that easing these restrictions could lead to increased layoffs.

Tomoko Yoshino, president of Japan’s largest labor organization, strongly opposed any relaxation of rules governing dismissals, emphasizing the need for worker protections.

Skepticism also exists regarding the narrative that looser dismissal regulations will stimulate economic growth. Economist Takuya Hoshino warned that it may be misguided to assume that relaxed rules would facilitate labor movement into growth sectors and raise overall wages, as dismissed workers might find themselves in lower-paying positions.

In response to these negative reactions, Koizumi has moderated his proposal, now emphasizing support for workers to enhance their skills and secure new employment—initiatives that have already been introduced under the Kishida administration.

Despite the opposition, advocates argue that the current economic climate presents a more opportune moment for reform, with Japan emerging from prolonged deflation and companies offering the largest wage increases in three decades while maintaining a jobless rate below 3%.

Takeshi Niinami, CEO of Suntory Holdings and a prominent voice in corporate Japan, has welcomed the discussion of labor reform during the leadership race. He remarked that the current dismissal rules were established during Japan’s manufacturing-driven postwar economic boom and necessitate reassessment.

With labor shortages and increased competition for talent driving wage rises, Niinami called for new leaders to engage in open discourse on transforming outdated frameworks without fear of taboo.