Masahiko Tanabe's life has changed since home products retailer The Loft Co. made him a permanent employee and gave him a 10 percent pay raise.

"This is kind of a luxury to me," the former temporary shop assistant said. "I used to buy fish for dinner; now I buy meat."

As aging employees retire, the labor market is shrinking, so companies are giving contract workers permanent status to retain staff. This reverses a trend that began in the early 1990s when a stagnating economy prompted businesses to hire more temporary employees and shed permanent jobs, many of which were considered lifetime positions.