Japanese Labour and Management in Transition

Diversity, Flexibility and Participation

Mari Sako, Hiroko Sato, Mari Sako, Hiroko Sato

• Publisher: Routledge
• Year: 2013
• Topic: Business
• eBook ISBN:
  9781135097073
• Subtopic: Regional Studies
• Index: Business

Japanese Management and Labour in Transition explores the changing face of Japanese industrial relations. Part one of the work outlines recent trends in Japanese labour markets, labour law and corporate strategy, and explores the responses of both management and labour to pressure posed by these trends. Part two analyses the interaction between the state, management and labour, considering both the macro and the micro levels. This compilation of up-to-date research by leading Japanese scholars challenges the traditional view of 'lifetime' employment and focuses on the growing economic pressures that Japanese management and labour currently face.

Part I

1 Trends in Japanese labour markets

Yoshio Higuchi

INTRODUCTION

It is usually said that labour practice in Japan has two characteristic features: ‘long-term employment’ and the ‘seniority-wage system’. Firms go on raising wages as their employees acquire more skills with longer service. The workers, on the other hand, expect higher wages for longer tenure within single firms which in turn increases the job retention rate (Hashimoto and Raisian 1985, Mincer and Higuchi 1988).

The long-term employment system helps the firms in training personnel, sharing information among employees and developing interest in the performance of the firm. At the same time, such a system gives workers the benefit of job security, which is considered an attractive employment condition for risk-averse workers. Moreover, with increased labour productivity, resulting from both a relationship of trust between workers and management and long-term competition for promotion among the workers under this system, it has the merit of contributing to the growth of the economy as a whole through stronger competition.

While the long-term employment system has these merits, a number of disadvantages also emerge. As firms must maintain job security of employees even during recession, labour cost is liable to be inflexible. Moreover, as employees get older an increase in personnel costs becomes unavoidable under the seniority-wage system. Even if the workers are dissatisfied with a firm, they patiently stay with it for a long time without moving to other firms because of higher job-turnover cost.

In addition, problems for the economy as a whole may also arise as a result of the effective utilisation of the labour market. With the progress of the international division of labour, where the industrial structure changes greatly, some industries might have surplus labour while certain others might face labour shortages. In a flexible labour market this problem can be rather smoothly solved through the reallocation of labour by way of job turnover, but in a labour market with a dominant long-term employment system it is difficult to solve this problem quickly.

The Japanese economy is now faced with a new situation. The older population is growing, while the high economic growth experienced in the past can no longer be expected. Moreover, the international division of labour and the Japanese Government's policy of deregulation are imposing great changes on the industrial structure itself. How are Japanese firms trying to solve the problems, which arise in this situation, while making the best use of the merits of long-term employment? This chapter examines this question, and reviews such problems through international comparison and time-series analysis.

PRESENT STATUS OF THE JAPANESE LONG-TERM EMPLOYMENT SYSTEM: AN INTERNATIONAL COMPARISON

How does the Japanese employment system compare with other countries? Figure 1.1 shows the average job tenure by sex and age in Japan, the USA and Germany, as presented in the OECD Employment Outlook (OECD 1993). This figure confirms the following three points.

1. As pointed out earlier, for Japanese males of less than 50 years of age average job tenure is very long and job retention is high. The difference in job tenure between Japan and the USA is quite large, but not so large when compared to Germany.

2. In the case of Japanese males of over 55 years of age, the average job tenure decreases rapidly and becomes less than that of Germany and the USA. The mandatory retirement age is set at a remarkably low age in Japanese firms and most of the employees leave firms to go to other firms or by taking early retirement.¹ Retired employees do not leave the labour market either, instead, they work for other firms.²

3. The average job tenure for Japanese females is longer than that for females in the USA but there is only a slight difference between Japan and Germany for females of a younger age. The job tenure of German females aged 40 and over is, however, longer than in Japan. In contrast to other advanced countries, the Japanese female labour force shows ‘M-type’ characteristics even today in terms of age, reflecting the fact that many women leave the firms for marriage or child care and return to work once their children have grown up.

Table 1.1 shows the levels for average job tenure and long-term employment in various countries including France and Spain. It can be observed from the table that, except for the USA, there is no big difference in the ratio of long-term employees and that job retention rate is high. It is also clear that the latter rate is higher for those who are above 40 years of age. If examined according to sex, the average job tenure of Japanese males is the longest among the five countries. Female workers in Japan rank fourth, followed only by the USA. The difference between the average job tenure of males and females is the largest in Japan at 5.2 years. There the long-term employment system is limited to the top stratum of males in large firms. When women or workers in small firms are included, the difference between Japan and Germany or France is not so large as generally emphasized.

Figure 1.1 Average tenure profiles by age and sex in Japan, the USA and Germany

Source: OECD (1993)

Table 1.1 Index of long-term employment in Japan, former West Germany, France, Spain and the USA

Source: OECD (1993)

Next, let us look at the characteristics of the Japanese wage profile for tenured workers. Table 1.2 compares the wage profile of regular male workers in Japan and the UK. Wage increases are similar in both countries for job tenure of up to 10 years. But a difference appears for a tenure of 10 years or more. In the UK, the size of wage increases, particularly for the production workers, decreases greatly, while that in Japan continues to rise. Compared to the wage of the production worker, the wage for office and administrative personnel continues to grow greatly even in the UK, but the increase is quite small when compared to Japan. As a result, the average wage of workers working for over 10 years in Japan and the UK differs greatly. A similar tendency can also be observed in Table 1.3 where age is used to compare the wage profile for Japan and other EU countries.

The basic data for the wage index was calculated from the production workers’ wage before tax (i.e. before the deduction of social security/tax) and included various allowances and overtime pay for these workers in the EU. For office administration and technical workers, the monthly salary, including allowances was used. This does not include the bonus due as a result of increases in company profits. In Japan, the wage is the monthly amount set within a prescribed limit which includes various allowances for production, office, administrative and technical workers. The wage is on a before-tax basis and includes the charge for workers’ social security payments. While in the case of Japanese production workers wage can be converted into an hourly rate, wage by job tenure cannot. Therefore, to enable a comparison to be drawn, the monthly wage has been used. The age groups selected for production workers are 18–19 years of age instead of 18–20 years of age, 20–29 years of age instead of 21–29 years of age and for office workers, less than 20 years of age instead of 21 years of age, and 20–24 years of age instead of 21–24 years of age. Other groupings remain the same.

Table 1.2 Wage of regular male employees by job tenure in Japan and the UK

Sources: UK: Department of Employment (1979). Japan: Ministry of Labour (1980)

Note: UK: Hourly wage for production workers; weekly wage for office, administrative and technical workers. Japan: Calculated from stipulated monthly income; regular employees in case of both Japan and the UK.

Table 1.3 Wage index of various countries by age group for male production workers and male office and administrative workers

Sources: Japan: Ministry of Labour (1976). Other countries: Statistical Office of the European Communities (1972)

Note: The wage index is based on the wage of the 18–20-year-old production worker taken as 100 and also that of 21–24-year-old office, administrative and technical workers as 100.

Compared to office and administrative workers, the growth of wage increases for production workers is less in all countries. This trend can also be seen in Japan, but the growth is larg...

Table of contents

• Cover Page
• Half Title page
• Dedication
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• Contributors
• Foreword
• Acknowledgements
• Introduction Forces for Homogeneity and Diversity in the Japanese Industrial Relations System
• Part I
• Part 2
• Appendix
• Index