JILPT Research Report No.218
Empirical Analysis of the Impacts of Legal Policy regarding Temporary Agency Work

March 31, 2022

Summary

Research Objective

This report examines the impacts of legal policy regarding temporary agency work (haken rōdō, which can also be more closely translated as “dispatched labor”), such as the policy set out in the Worker Dispatching Act—the career formation support and employment stability measures of 2015 and the equal pay for equal work provisions of 2018—and the Excellent Temporary Work Agencies Certification System launched in 2014. It draws on data from a survey of temporary work agencies conducted in FY 2019 and FY 2020. The same agencies were surveyed over two years to ascertain developments at around five years after the 2015 amendment to the Worker Dispatching Act as well as before and after the implementation of equal pay for equal work.

Research Method

1. Data:
   • “Survey on Personnel Treatment Systems and Career Formation of Agency Workers,” conducted in September 2019 (hereinafter “the FY 2019 Survey”)
   • “Survey on the Progress of Implementation of Rules on Equal Pay for Equal Work and the Employment Situation of Agency Workers in the COVID-19 Pandemic,” conducted in February 2021 (hereinafter “the FY 2020 Survey”)
2. Survey subjects:
   • 23, 805 businesses that had been operating as temporary work agencies for at least two years as of the FY 2019 Survey
3. Valid responses (response rate):
   • FY 2019 Survey: 7,366 responses (30.9%)
   • FY 2020 Survey: 8,389 responses (35.2%)

   Sample of 4,161 responses from respondents who responded to both surveys (Data was matched using the agency IDs)

Key Findings

1. How have wages and agency fees (total amount paid to the temporary work agency by the client business, including the worker’s wages) changed due to the implementation of equal pay for equal work? Given the expansion of the scope of eligibility for allowances and bonuses, what impact does the application of such allowances to agency workers have on wages and agency fees?

(１) Wages, agency fees and margin rates all tend to be higher in the case of agencies that chose to adopt the Labor-Management Agreement Method (an approach by which temporary work agencies conclude a labor-management agreement with the labor union organized by a majority of the workers or a person representing the majority of the workers, and make decisions on the treatment of temporary agency workers on the basis of said agreement), as opposed to those that selected the Equal and Balanced Treatment at Client Business Method (an approach based on ensuring that the treatment of temporary agency workers is equal and balanced with that of “regular employees” [employees who are directly-employed on full-time, open-ended contracts] at the client business). Where factors such as job content, ability, and performance are reflected upon wages, wages and agency fees are higher. A correlation was also observed between higher numbers of continuous years in employment at the temporary work agency and higher wages/agency fees (Figure 1).

(２) Looking at allowances in correlation with bonuses/wages and agency fees, at agencies where agency workers are eligible for managerial allowances (yakushoku teate), wages tend to be high, and at agencies where agency workers are eligible for bonuses (shōyo), wages, agency fees, and margin rates all tend to be high.

(３) With regard to the application of retirement allowances (taishokukin), trends differ significantly between agency work on a fixed-term contract (“fixed-term agency work”) and agency work on an open-ended contract (“open-ended agency work”). It was revealed that retirement allowances for fixed-term agency workers and retirement allowances applied since the implementation of equal pay for equal work may differ in character from the retirement allowances that have up until now been considered conventional—that is, the payments typically serving as an incentive for pursuing a long career with the same employer.

Figure 1. Continuous employment index and wage estimates for open-ended and fixed-term agency work

• Note: Figures in brackets are the “continuous employment index.”

2. The analysis addressed the efficacy and issues of the Labor-Management Agreement Method, by examining whether the wages of temporary agency workers have risen as a result of the implementation of equal pay for equal work and which of the two approaches—the Equal and Balanced Treatment at Client Business Method and the Labor-Management Agreement Method—are effective for raising wages.

(１) Looking at the trends revealed in the survey as a whole, since the implementation of equal pay for equal work, wages have risen at over half of the temporary work agencies. Multivariate analysis of the factors increasing wages indicated that the rise in wages has been greater at those agencies that chose the Labor-Management Agreement Method in comparison with those that chose the Equal and Balanced Treatment at Client Business Method.

(２) Increases in agency fees—namely, the source of wages—play a key role in wage increases. Analysis showed that while adjustments by agencies to their wage scales (adjustments according to ability or position, etc.) were not a statistically significant factor in wage increases for agency workers, agencies’ adjustments to their agency fee schedules have a significantly positive impact on wage increases.

(３) Results also indicated that where agencies have formed a labor-management agreement with a representative of the majority of workers and said representative is an agency worker, there is a higher probability of wage increases, while wage increases tend to be unlikely when the agreement is formed with a union representing the majority of workers. It is suggested that this is due to the fact that the labor unions representing the majority of workers tend to have only a small proportion of agency workers in their membership, and therefore have little incentive to pursue efforts to ensure wage increases for agency workers.

3. Have training and systematic career formation support—which became mandatory as part of the career formation support for agency workers that was implemented under the 2015 amendment to the Worker Dispatching Act—subsequently had an impact on wages and agency fees? The following insights were gathered from the results of analysis of agencies that felt such training and support helped to raise added value, and the percentages of agency workers utilizing career formation support.

(１) As enterprises typically seek to recoup their investments in vocational ability development over a certain period of time, there is a strong correlation with the number of continuous years of employment. A correlation was seen between the percentage of agency workers using career formation support and the average number of continuous years of employment at a business. On the other hand, results indicated no correlation between continuous years of employment and the provision of education and training opportunities at agencies that felt that such training and support helped to raise added value. It was revealed that at agencies that felt that such training and support helped to raise added value, career ladders and vocational ability assessments are reflected upon, and linked with, wages and agency fees. It could be speculated that such agencies have a system by which they are able to recoup the costs invested in vocational ability development irrespective of the periods of time workers remain in continuous employment.

(２) While the agencies with high percentages of agency workers using career formation support tended to be in “specialist and technical” fields, looking at the fields of business of the agencies that felt that such training and support helped to raise added value, not only agencies in “specialist and technical fields,” but also those in “manufacturing” and “sales and services” recognized the impact of career formation support in raising added value.

(３) Agencies that felt that career formation support helps to raise added value or agencies with a high percentage of agency workers using career formation support are operating such support at a level higher than that required by the law. This includes, for example, pursuing initiatives such as consultations with career counselors for all agency workers who are already working for client businesses.

(４) Such agencies have also created systems that inspire the sense of developing a career and recognition of incentives. Such systems may be helping to prompt agency workers to actively engage in vocational ability development, and thereby generating a virtuous cycle.

It was revealed that at agencies that felt that career formation support helps to raise added value, wages are high, and at agencies with high percentages of agency workers using career formation support, wages, agency fees and margin rates are at high levels.

4. Focusing on the Excellent Temporary Work Agencies Certification System, what kinds of employment management are temporary work agencies implementing with regard to legal policies such as career formation support, employment stability measures, and equal pay for equal work?

(１) Regarding career formation support for agency workers: Certified agencies, in contrast with noncertified agencies, are actively engaging in vocational ability development and career formation support for agency workers, as they tend to assign a greater number of qualified career counselors and utilize career ladders when negotiating agency fees.

(２) Regarding employment stability measures: Certified agencies, as opposed to noncertified agencies, are working to ensure the open-ended employment of agency workers, as they have a strong tendency to fulfill category two employment stability measures (providing the agency worker with a new work placement) by taking steps to ensure that the agency worker is converted to open-ended employment status and employed in the same department of the same client business, as opposed to finding the agency worker a new placement as a fixed-term agency worker.

(３) Regarding equal pay for equal work: It was found that a higher percentage of certified agencies, in comparison with noncertified agencies, responded that equal pay for equal work is implemented almost perfectly and are implementing equal pay for equal work at higher standards.

These analysis results confirm that temporary work agencies that have acquired certification as an Excellent Temporary Work Agency are, in comparison with those temporary work agencies that have not acquired certification, generally conducting employment management in line with the policies of the law and operating in such a way that contributes to improving the quality of temporary work agency services. However, while it can be inferred that such employment management has a certain impact on settling open-ended agency workers, it was also seen that its effects do not extend to settling fixed-term agency workers or securing agency margin rates.

5. How has the COVID-19 pandemic affected temporary agency work? Has the employment of agency workers on open-ended contracts, which rose considerably from FY 2017 to FY 2018, continued during the pandemic?

(１) The pandemic had significant impacts particularly on those agencies that operate in the fields of “manufacturing” and “sales and services,” in the Chubu region, with client businesses in the fields of “manufacturing,” “wholesale and retail” and “accommodations, eating and drinking services,” and as micro, small and medium-sized enterprises.

(２) The rate of decline in employment of fixed-term agency workers in comparison with the same month the previous year was around double that of open-ended agency workers, reaching a peak in the second quarter of 2020 (April–June 2020), increasing slightly in the third quarter (July–September 2020) and subsequently declining. In the case of open-ended agency work, on the other hand, following a sharp rise in the second quarter, the rate grew slowly but surely into the fourth quarter (October–December 2020) without declining (Figure 2). This analysis revealed that within the field of agency work, there are differing trends in employment adjustment between fixed-term and open-ended agency work.

(３) It was shown that those agencies that increased open-ended agency work from FY 2017 into FY 2018 can be characterized as converting workers to open-ended employment along with the implementation of employment stability measures, being largely in the field of “clerical” services, having high numbers of agency workers, and high rates of fixed-term employment.

(４) Estimates of the rate of employment decline in this group (“agencies with an increase in workers on open-ended contracts”) show a tendency for a decrease in the rate of decline from the third quarter onward. This indicates the possibility that, while the agencies that were affected by the COVID-19 impact were largely in the fields of “manufacturing” and “sales and services,” the businesses with an increase in open-ended agency work were those in “clerical” services, and, given the considerable funds invested in the 2015 amendment, such agencies may be inflexible toward short-term impacts, due to their intention to recoup those funds in the long term.

Figure 2. Estimated decline in agency workers and the impacts of the COVID-19 pandemic in 2020 Q1–4

• Note: The figures are estimates of the rate of decline, in comparison with the previous financial year, of agency workers where the relevant “impact of the COVID-19 pandemic” was 1.

Research Period

FY2018–2021

Researcher and Assistant

ONO Akiko

Assistant Research Director, The Japan Institute for Labour Policy and Training

NAKAMURA Akie

Senior Chief Researcher, RENGO-RIALS

SHIMANUKI Tomoyuki

Professor, Graduate School of Business Administration, Hitotsubashi University

Contents

• The full text in Japanese (PDF:8.8MB)

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