Growing Reliance on Temps Holds Back Japan's Rebound

The companies may not worry that much about domestic demand if their exports increase to make up the difference and if their cost savings through using temps increases their profit levels. If increased domestic consumption decreases their profits companies will prefer that domestic consumption not increase. If the price of increasing domestic demand is to hire more expensive full time employers with resulting lower profit margins then naturally companies will oppose this.
The article points to the problem of underconsumption if wages are too low but since the companies do not depend primarily upon domestic consumption this may not be that much of a problem. However, for companies that depend solely upon domestic consumption low wages may very well slow down growth through lack of consumption.

Hayashi, Yuka. 2008. "Growing Reliance on Temps Holds Back Japan's
Rebound." Wall
Street Journal (7 January): p. A 1.
http://online.wsj.com/article/SB119939511325465729.html?mod=todays_us_pa&apl=y&r=125968

"One reason Japan's rebound hasn't gotten traction: companies' growing
reliance on
temporary workers, who earn less -- and spend less -- than full-time
employees. The
shift in hiring can be seen at companies like Hino Motors Ltd. The
truck-making unit
of Toyota Motor Corp. is paying record dividends this year. But it also
has been
filling thousands of factory jobs with temporary workers, who start at
$10 an hour
and get few benefits."

"More than a third of the people in Japan's labor force are categorized
as
"nonpermanent" workers: part-timers, temps on fixed-term contracts and
people sent
to companies by temporary-staffing agencies. That compares with 23% in
1997 and 18%
in 1987."

"Use of temps gives companies flexibility and cost control, helping
them succeed in
highly competitive global industries like manufacturing. Big Japanese
companies have
reported earnings growth for five straight years."

"In the past decade, average wages in Japan have fallen every year
except two
because of an increase in temps and stagnant wages for full-timers.
Consumption by
working families declined on a year-on-year basis in six of the past
eight quarters.
This even though the Japanese are also saving less: A Bank of Japan
survey showed
that some 23% of households had no savings last year, compared with
just 10% in
1996."

"The result is sluggish domestic demand and growth that is supported by
exports to a
lopsided extent. In the July-September quarter, when Japan's economy
grew at an
annualized rate of 1.5%, exports were rising at an annualized 11% rate
and domestic
demand was shrinking slightly. Personal consumption is so weak in Japan
that it
accounts for only a little over half of the economy, compared with 70%
in the U.S."

"Until the late '90s, worker-friendly laws forbade temporary-labor
contracts except
for a few specialized areas, such as computer programming. A change in
1999 allowed
temp agencies to dispatch workers to many more types of jobs. And in
2004,
manufacturers were allowed to use workers sent by temporary-help
agencies."