"But this type of regulation may decrease Japanese companies' competitiveness. That's a Catch-22 for the Japanese economy."
The measure fulfills a campaign pledge made by the DPJ during last summer's election campaign.
The bill approved by the cabinet Friday will ban "dispatch" work, or short-term contract work arranged through a third company, in the manufacturing sector. That rolls back liberalization measures in 2004 under the more business-friendly Liberal Democratic Party (LDP) government.
The new measures would also ban one-or two-day dispatch work contracts.
The bill now goes to the Diet, or parliament, where it is expected to pass within weeks.
Such measures are a response to widespread indignation over the mass firing of dispatch laborers when the recession hit in 2008.
Dispatch workers, along with part-time, subcontract, and other nonpermanent labor, now make up about one-third of Japan's 56 million-strong workforce.
The labor reforms are supported by Rengo, Japan's largest trade union confederation and a pillar of DPJ support. Most of its nearly 7 million members are permanent, full-time workers at big-name firms like Toyota and Panasonic.