By Stanley White and Izumi Nakagawa
TOKYO (Reuters) - Japan's government has placed a high priority on narrowing the gap in pay and benefits between regular and contract employees as this will raise productivity and consumer spending, said Katsunobu Kato, minister for labor market reform.
Companies can afford to narrow the pay gap without cutting salaries for regular workers, because companies have enough profits and reserves to increase labor's share of profits, Kato told Reuters.
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The government will tackle Japan's notoriously-long working hours by setting limits on overtime that could be submitted to parliament sometime next year, he said.
A panel that Kato leads will compile guidelines on narrowing the pay gap on Tuesday, which is a central plan of Prime Minister Shinzo Abe's labor reforms to end decades of stagnant growth and deflation.
"Wages are a big motivating factor. People want to feel they are being evaluated for their work and rewarded based on their work," Kato said.
"On a macroeconomic level, improving pay gives more people the chance to work and improve their pay, which feeds into higher consumption."
The government, at the behest of large companies, began promoting contract and non-regular worker status in the 2000s as a way to lower personnel costs and preserve jobs during a prolonged economic slump.
Since then, the number of contract workers has swelled to around 37 percent of the workforce, and critics say this has created a two-tiered labor market because contract employees receive considerably less pay and benefits.
Abe turned his attention to labor market reform earlier this year to revive his structural reform agenda, a move which economists genially welcomed.
The debate has taken on an added significance after the suicide of a recent college graduate who worked more than 100 hours of overtime at the country's top advertising agency preceding her death.
The government's minimum threshold for death by overwork is 80 hours of overtime per month, which is excessive and contributes to long working hours, Kato said.
It is too early to put an exact number on the overtime limits the government will set, but Kato hopes to reach a conclusion by March and said it is possible that limits could differ per industry.
Improving working conditions has been a long-overdue task because the working-age population is shrinking and Japan's productivity in the services sector is low by most international comparisons.
Abe's labor reforms have already raised the minimum wage and made companies more accountable for improving conditions for working mothers. Abe is also looking at encouraging more telecommuting and at attracting more high-skilled foreign labor.
(Editing by Jacqueline Wong)