Japan: Economics in Everyday Life

13. Why Don’t Workers Claim All Their Overtime?

13 Why Don’t Workers Claim All Their Overtime? Teruyuki Higa and Karen Lupardus Japanese workers have a reputation for working long overtime hours. Curiously, they don’t usually ask to be paid for all the extra hours they work. Imagine an employee who leaves the office one night at 11 p.m., six hours after the normal quitting time. Allow an hour for dinner. If the employee claims three hours of overtime, the remaining two hours would be considered “service overtime,” or unpaid overtime. Imagine now that it is not just one employee, or an occasional night at the office, but that it is a regular routine for many Japanese workers—two-fifths of them, as indicated in a survey taken at the peak of the bubble economy. With 50 million workers, the total amount of such unpaid overtime in Japan was staggering. How Much Unpaid Overtime do Japanese Workers Put In? There are no official statistics on the amount of unpaid overtime . However, it is possible to estimate its magnitude by comparing the hours of work computed by the Ministry of Labor for its Monthly Labor Survey (MLS) with the hours computed by the Management and Coordination Agency for its Labor Force 91 Survey (LFS). For its estimate, the MLS computes hours of work based on the payrolls of firms that indicate the paid hours of work. That number is smaller than the one estimated by the LFS, which is based on interviews of workers and reports the number of hours they claim to have worked. In 1994, the MLS figure for hours of work averaged nearly 167 hours per month for male workers, while the LFS figure was 47 hours per week (about 204 hours per month). Computed over an entire year, the MLS figures amount to 2,003 hours while the LFS figures show 2,444 hours. In other words, in 1994, the average Japanese male worker gave his company 441 hours of unpaid overtime. Another way of looking at it is that these workers were paid only 82 percent of the hours that they actually worked. The extra unpaid hours don’t show up in official international labor statistics when comparing hours of work put in by workers from different countries. If the hours of work claimed by the Japanese workers are correct , it means that the average male worker was at his job every day of the year except Sundays, putting in eight hours on weekdays and six hours on Saturdays. Contribution of free overtime is especially prevalent among salaried male white-collar managers and salesworkers. The Economics of Unpaid Overtime In Japan, Dr. Pepper has begun a campaign of offering 500 milliliter cans for the same price as 350 milliliter cans. When Dr. Pepper offers an extra 150 milliliters of soda apparently for “free,” it is actually lowering the price of its product. The same is true of service overtime. By working extra hours for “free,” the worker is actually receiving a lower hourly wage than the nominal (i.e., stated) wage because everybody involved expects to and does deliver more hours of work than was agreed to in the nominal contract. That lowers the effective wage rate without lowering the nominal wage rate. Thus, the true labor con92 Japan: Why It Works, Why It Doesn’t tent per unit of Japanese goods and services produced is actually higher (and the true wage rate is lower) than suggested by official government statistics. Unpaid overtime increases the flexibility of the Japanese wage structure. During the recent prolonged economic recession, while hours of work reported in Japanese official labor statistics declined, free overtime appears to have remained unchanged and may have even increased. A comparison of data for males in 1992 and 1994 suggests that unpaid overtime may even have increased from 435 hours in 1992 to 441 hours in 1994. Since nominal wages in Japan are negotiated through collective bargaining (see chapter 14), they cannot be unilaterally reduced by employers even during a recession, when the demand for labor is falling. The alternative is to increase the amount of employee unpaid overtime, and in that way companies lower their effective wage rates and thus reduce the need to lay off workers. How Do Companies View Unpaid Overtime? Japanese companies customarily operate under a labor-shortage environment, resulting in heavy work assignments for each employee . The result is a heavy reliance on overtime...