During the fourth quarter of 2008, the already-struggling Japanese economy shrank by over 3%. This is Japan’s worst economic performance since the mid-1970s. As a result of the dismal economic outlook, many firms in Japan have resorted to laying off employees.

Many multinational companies in Japan have found it increasingly costly to hire full-time employees because of stringent requirements for healthcare and pension contributions. As a result, the popularity of non-regular employees (i.e. temporary or part-time workers) has grown in recent years. Now, as the economy slows, firms are also finding it less legally challenging to lay off or reduce wages for these individuals. During the past six months, it is estimated that more than 125,000 non-regular workers have lost their jobs in Japan.

Many firms that do not wish to cut employees are asking them to work fewer hours. Overtime pay requirements in Japan are between 25% and 50% above base pay, depending on the circumstances. Last month, average compensation in Japan fell by around 1.5%, while overtime compensation fell by more than 11%. This is a cost-effective way to help firms ride out the recession while retaining valuable employees.