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Goverment plans subsidies for firms to switch part-timers to full-time status

During the middle of last week, the National Police Agency announced that the number of part-time gangsters was greater than the number of full-timers for the second straight year, and we also learned that the Ministry of Health, Labor and Welfare has been brewing up a plan to entice more firms to switch members of the part-time workforce to full-time status.

The growing number of part-time workers is something that worries the government quite a bit, as it should. Since 1990, the proportion of Japan’s workforce that is classified as working part-time has increased from 20 percent to 33 percent. Of course, there are social reasons why this shift worries the government, but there are also budgetary reasons.

Quite simply, part-time workers are less likely to be enrolled in the nation’s heath care and pension schemes. With Japan’s demographics as they are, and the government’s share of pension contributions set to increase in the next couple of years, the government would like to see as many people in full-time, pension-paying positions as soon as possible.

The problem? Full-timers can be expensive. When a full-time employee is enrolled in the national health and pension system, that employee must pay half of his or her premiums and contributions, while the company pays the other half. For an employee on an average salary, this would cost both the employee and the company about 25,000-30,000 yen per month.

The government’s proposed plan seems set up to fail from the beginning. The Ministry of Health, Labor and Welfare is apparently seeking 500 million yen in fiscal 2008 in order to use as subsidies for small and medium-sized firms (defined as companies with 300 or fewer employees) that decide to participate in its scheme.

Here’s the deal: If a company decides to participate, it will receive 350,000 yen total for the first two employees who become full-time workers. After that, the government will pay 100,000 yen for each employee, up to a maximum of ten people.

Let’s assume that the average company participating in this program switches five employees from part-time to full-time status. This would mean that such firms would be receiving 650,000 yen from the government, which averages out to 130,000 yen per worker. With the government seeking 500 million yen for the subsidy this year, about 3,850 of Japan’s just over 17 million part-time workers could be switched to full-time status.

What about the company? If they receive 650,000 yen from the government, that will cover almost 22 months of pension and health insurance premiums. In other words, after being in the program for five months, small and medium size firms will be losing money by taking the government subsidy.

Not to mention, making employees full-time means that they generally qualify for bonuses. This is a further cost burden imposed on the company, and avoiding this cost is one of the reasons why companies have been employing more and more part-timers over the past 15 or so years.

We should stress that the math here is rough. Should each participating firm switch the maximum of ten employees to full time status, it could be done at a cost of 115,000 yen per worker. This could bring about 4350 new full-time workers into the system. If those folks remain full-time workers for one year, the government could bring in an extra 3 billion yen or so over the year following the switch. We estimate this could help the government contribute to the pensions of an additional 70-100 retirees.

The cost-benefit for companies, however, seems to make no sense. What company will participate in a government subsidy program knowing full well that they will begin to lose money on it within six months - especially given the current business environment for small and medium size firms?

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