Japan's Lost Generation

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says Masako Ikeda, a 30-year-old who works at a video game company in Tokyo but is employed by a job agency.

The suffering generation also suffers from more mental illness. Workers in their 30s accounted for 61% of all cases of depression, stress, and work-related mental disabilities last year, up from 42% in 2002, according to a study by the Japan Productivity Center for Socio-Economic Development. "Because of the anxiety stemming from job insecurity, it is quite natural that these people have problems," says Susumu Oda, the psychiatrist in charge of the survey.

The fate of the likes of Nehashi and Ikeda worries Japan's economists. If members of the lost generation don't land higher-paying, salaried jobs, they won't have much pocket change to spend or funds to sock away for their old age. Credit Suisse Group (CS) estimates these people could saddle Japan's taxpayers with $67 billion a year in retirement and health-care costs if their number remains at current levels for the next three decades.

Tokyo is waking up to the problem. Last year it set targets for paring the ranks of the underemployed, and it is offering companies $2,500 for each new hire of a freeter aged 25 to 34. And in September, the Health, Labor & Welfare Ministry unveiled projects to help NEETS join the workforce. It plans to double the number of NEET outreach centers, staffed by psychologists and job counselors, to 50 this year and to increase training schools to 40 from the current 25. "The government is finally realizing that it has a crisis on its hands," says Yosaku Sato, director of the Bunka Gakushu Cooperative Network, a nonprofit based on the outskirts of Tokyo that receives $200,000 a year in public funds to run training and placement services targeted at young people.

Some companies are pitching in, too. Toyota Motor Corp. (TM), which has tripled the number of workers it employs on short-term contracts to 10,000 since 2001, put 943 into permanent positions last year and plans to convert 1,200 more by next March. Phone company Nippon Telegraph & Telephone Corp. (NTT)and Fast Retailing Co., owner of the Uniqlo clothing chain, have announced similar plans.

RANKLED RANKS
Meanwhile, some disgruntled Japanese contract workers are pressing for change the old-fashioned way. Electronics giant Canon Inc. (CAJ) is in the spotlight after Hideyuki Ohno, a 32-year-old temporary worker at the company's Utsunomiya factory, near Tokyo, organized 17 other temps into a union. His beef: After seven years on the job, he's still employed by an agency, not Canon. Ohno, who earns $2,200 a month polishing glass lenses for steppers, the complex machines used to make semiconductors, says he hasn't had a raise in five years. "I heard my salary was nearly half of a regular staffer of the same age, but I tried not to care about it too much," says the father of two. Then Ohno read in a newspaper that Canon may have violated employment law in not offering him a permanent position after his many years with the company. That spurred him to file a complaint with the Labor Standards Office.

Despite growing profits, Canon still relies heavily on outside help. In 2006, it increased its ranks of contract employees by 19%, to 37,000; permanent staff rose 4%, to 50,753. Canon declined to comment on Ohno's case but says it treats temporary workers fairly and follows all labor laws.

Ohno says the dispute has opened a rift between temps and full-timers at the plant where he works. After he launched his lawsuit, tape was put on the floor to demarcate the line between permanent employees and temps. "We used to all work together," says Ohno. "But now they don't even say, Good morning.'"

With Hiroko Tashiro in Tokyo