What does it cost to fix the Shakai Hoken problem? (U.S.-Japan totalization treaty issue)

I have been playing around with some numbers over the weekend.

First is an ALT/Eikaiwa worker example.

If there is a company with 1800 “treaty-partner” employees, paying an average of 2.8 million yen a head, have you ever considered what the Shakai Hoken (Japanese social insurance) costs?

I decided to pin a number to it, and it looks like it’s a total just shy of $15 million (US dollars). Half of that is borne by the employer, and the other half by the employee. That is before “tax effects”, since each share is deductible to the employer and to the employee. (This is unlike America, where the employee usually gets a health insurance premium deduction, but not a pension deduction.)

I have grown bored reading or even talking about the General Union’s shakai hoken push, so I don’t even want to go down the road that they do. You are not going to convince private businesses to add 20% to their costs under some threat that you will go down to the local labor law administrator, who will do nothing anyway.

I do think, however, that this is quickly going to become a Totalization Treaty issue. America, Canada, Australia, and New Zealand agree to cover Japanese citizens working in those countries for pension at least. Three of the four cover for health care, and America will be the fourth in January 2014. The Japanese bureaucracy, setting up systems to cause treaty-partner citizens not to have the coverage while they are in Japan, is, more and more, going to become a State Department issue. [Update 6/6/11: It turns out, it already has.]

It’s not the employer’s fault in the Eikaiwa/ALT industry. As long as the Japanese government allows some dispatch companies and employers to underbid others, by not enforcing shakai hoken, no company in their right mind would give up their piece of the profit by voluntarily paying into the system.

That’s not rocket science, is it? If I am a dispatch company, and I can knock 20% off my bid, just by avoiding what amounts to a tax on labor, why wouldn’t I go that route?

The situation becomes totally different if you can’t play unless you cover. This is what the Japanese government should have as the rule, as I’ve said before: unless a company who places or employs “treaty-partner” citizens can certify that they are participating in Shakai Hoken, they should not be able to do business in Japan. (A separate provision could be employed if the firm is so small that the Kokumin coverage is qualified for. There, the employer will have to get the employee’s certification that they are paying up.)

With one stroke, the economics of cheating the Shakai Hoken system changes. Now, all bids must include a factor for the money that should go by law, and by treaty, into the system.

This is a recurring problem that can be solved in an afternoon. And it doesn’t cost the employer or the employee anything additional. If it involves the schools, the Japanese government, through its education budgets, bears the immediate cash costs. The profit structure for the employer is unchanged, and the benefit to the employee is unchanged, because the employee is getting value in exchange for the Shakai enrollment. They may even get the pension part back early as cash if they leave Japan.

For the Japanese government, as I note in the clip above (click to enlarge), the additional money the education bureaucracy pays out stays within the country. The healthcare premium goes, ultimately, into the medical system. The pension premium pays out to current beneficiaries, and Japan books a liability for future payments to the employee.

Fifteen million dollars yearly, to settle a matter than could potentially be raised by any of 1,800 foreign workers—a number that grows exponentially with each passing year—is quite a bargain. Especially, when it means the money stays in Japan anyhow and is just shuffled between government accounts. The employers win because a smelly issue and potential future liability is removed. The employees win because they are getting their due under the totalization treaty.

Please talk this up.

[Update: The additional $7 million is coming from governmental revenues. It is also going to some current function of the government: either pay out current pensions, or pay into the hospital system. You all see that, right? The commitment (the payable) to the employee is that the Japanese government would be paying out a pension in the future. It costs the Japanese government nothing right now. That is the treaty commitment. In turn, Japanese working in America are being covered by our social security.

If the employer is an ALT dispatch firm, the fact that it has to withhold Shakai Hoken is offset by the fact that none of its competitors can underbid them. So the Shakai is in the cost structure of all the participants, or else they don’t get to play the game, so to speak. So if the dispatch firm gets $5,000 a head, they will still get $5,000 a head.

If the employee is currently not being covered by health insurance, then, yes, that’s a cost to the employee that they didn’t have out before. But you need health insurance, especially if you are off in some country that’s not your own. In 2014, the US government will be asking people to certify that they have it, or else pay a surtax. So that matter should not be a controversy.

The pension money is still being refunded back under the dai tai ichi-ji kin rule, even against totalization country citizens, which I think is bonkers. The whole philosophy of the one-time withdrawal was that you’d never get the 25 years into the Japanese system. But now, with totalization, it’s very easy to get the 25 years–especially if you are a young person. Watch for Japan to catch up on that fluke of a policy matter sometime in the near future.]

[Update #2: Cost? Yes, of course there is a cost. To the Japanese Pension System, they have to book a payable to pay the young kids (and not so young), coming in to work in Eikaiwa or as ALTS. But, unless these workers turn around and do “dai tai ichi ji kin” (one-time lump sum withdrawal), there is no cash out.

Fair? Yes. The United States is booking payables in its social security system for Japanese who are working in America! We’re doing what the treaty says to do. Japan is looking for ways to get around the treaty, usually schemes involving multiple players and multiple excuses. (So typical, ne? Maybe not. Maybe yes.)

The tsunami is going to be the excuse not to fix anything. Even though this has nothing to do with Miyagi Prefecture. Just you watch. The tsunami is already the excuse for Temple Japan to waste rent money in downtown Tokyo. Probably half-a-dozen other things, too.]

[Update 3/3/12: I refer to the totalization agreement as a “treaty”, but technically it’s just an administrative agreement.]