National Factors and Employment Relations in Japan Prepared by Dev Raj Adhikari Central Department of Management Tribhuvan University Email: [email protected] Submitted to: Japan Institute of Labour Policy and Training, Tokyo Japan March 28, 2005 Executive Summary A number of changes have occurred in the management of employment relations practices as triggered by the changes in the Japanese national factors—national institutions, labour market, national culture and business and economy. Available Anglo-Saxon literature provides abundant evidence that changes in these national factors in the past had jolted the three prevailing sacred aspects of Japanese employment relations— life-time employment, seniority based system and enterprise-based unions. Realizing this fact, this study attempts to examine the influence of national factors on employment relations practices in Japanese companies. National institutions, in this study, refer to government rules and regulations, educational system, unions and employers’ associations. The government is deregulating its role of protectionism. Educational institutions have played roles to provide cooperative, disciplined and committed manpower. However, there is increasing demand to reform the educational system to support creativity and innovation. In the process of economic development in post-war Japan, the role of trade unions remained highly significant. However, the current rate of unionization is declining due to new developments in internal and external labour markets, changing government policies and declining interest of young recruits to join unions. The role of employers’ associations is highly regarded to strengthen relations with unions and government. Japanese society is recognized as one of the highly cultured societies. The main value system existing in the society is cooperation, collectivism, harmony, respect for seniors and hard-work. They influence the custom, practice, relationship among people in the society and thus have been influencing Japanese work system implicitly. Many believe that Japan’s economic miracle in the past is, inter alia, due to these national cultural factors that have largely influenced employment relations practices at the company level. However, the review of the past literature provides sufficient evidence that Japanese culture was not very rigid. A number of changes have occurred in the prevailing national culture in the course of development in the Japanese societies. Labor market is also a form of national institution to influence employment relations. The main characteristics of Japanese labour market are: declining population growth rate, aging workforce, increasing unemployment rate, differences in the participation ratio of the male and female work force and increasing number of NEET (not in employment, education and training) people. Although Japan faced a number of economic ups and downs in the post-war period, she has secured the position of second largest economy after the USA. She suffered from two oil crises in the 1970s that motivated organizations to invent energy saving products. Her economy took a nosedive with the collapse of bubble economy in the 1990s. Once from the double digit growth in the high growth period she has entered into a deep economic crisis with the effect of two oil crises and the bubble economy. Economists argue that Japan is still facing a recession due to the declining productivity of the economy. Since, Japanese economy and businesses are highly integrated with the global economy, such ups and down are phenomenal in the economy. In the last three decades, changes have also occurred in the employment relations practices. Though Japanese employment relations system was regarded as the most vital element for the success of Japanese economy, especially during 1970s, many academicians and practitioners raised question marks. In fact, the changes in national factors had jolted the prevailing employment relations practices too. The impact of developments in national factors seemed to be different in the size, number of employees and sectors of individual company. However, in general, all the above four national factors are influencing the employment relations factors. The government is deregulating prevailing employment relations practices. This has challenged the rights of workforce. With a declining population and quality of labour force, some companies are worrying about the future supply of labour force. With increasing competition in the market, companies are interested to cut operational costs. They gradually increase recruitment of non-regular and part-time workers in the place of regular workers. In fact, the recruitment of employees from among the school and university graduates is declining. In big and medium-sized companies, the seniority-based system is being slowly replaced by a performance-based system. The parallel effect is that the annual increment system is gradually replaced by a performance based system. i Acknowledgements This study would not have been possible without the support of the Japan Institute of Labour Policy and Training (JILPT) during my research on National Factors and Employment Relations in Japan. I would like to pay my sincere gratitude and thanks to the honorable President of the JILPT Dr. Akira Ono and his outstanding research team for providing great support and facilitating me in all respects to complete this research in time. My sincere thanks go to Mr. Yukihiro Miura, Research Director and Mr. Sumio Sakai, Deputy Director of International Affairs Department for helping me in many respects to accomplish my work. I appreciate all other researchers and staff members of the International Affairs Department at the JILPT. I am very much grateful to Professor Toshitaka Yamanouchi of Osaka Sangyo University who not only recommended me to the Long-Term Visiting Researcher Programme but also provided valuable support and guidance in the course of this study. I would like to thank him sincerely for the same. I would like to offer my sincere thanks to Mr. Shunichi Uemura, Research Director for reading all the chapters thoroughly and for providing valuable suggestions. Despite his busy schedule he made wonderful efforts to help me. Similarly, my sincere thanks go to Mr. Shigeru Minami, Mr. Haruhiko Hori, Dr. Atsushi Sumi and Mr. Hitoshi Ota who are the specialists in different areas and helped me a lot by providing valuable suggestions and guidance for the improvement of many of my chapters. I would like to thank Prof. Motohiro Morishima, Graduate School of Commerce and Management of Hitotsubashi University and Prof. Katsuhiko Hirasawa of School of Business Administration of Nihon University for advising and helping me in the course of my study. I am very much pleased with Mr Shinji Taya, HRM Group Manager of Mitsubishi Chemical Corporation, Mr. Shin-ichiro Kikuchi, Manager, HR Training Division of Japan Association of Shinkin Banks and Naoyuki Aikawa, Representative of Central Educational Institute of Japan Association of Shinkin Banks. They provided important information, participated in interviews and described the situation of national factors and employment relations in their respective organizations. I would like to thank Mr. Ryoukichi Katagiri, Deputy Direct of Research Library and other library staff at JILPT for providing me with the literature on the subject. I would also like to thank many other researchers including Mr. Hideo Higuchi, Mrs. Junko Hirasawa, Mari Yamazaki and Takashi Fujimoto for supporting me while organizing and conducting research and interviews in Japanese companies. During my stay at the JILPT, I had a wonderful opportunity to interact with colleagues from different parts of the world. Especially, I enjoyed my friendships with Mr Christopher Sparks of Bureau of Labour Statistics of USA, Kee Beom KIM from International Labour Organisation Geneva, Apichai W. Shipper of University of Southern California and Mr. Saman Dessanayake from University of Colombo Sri Lanka, Dr. Heikki Raisanen of Finland and Hendrik Meyer-Ohle of Singapore National University. I greatly appreciate and thank Masumi Seto for the logistics and many other supports. Finally, I would like to thank my family members for providing moral support and cooperation to undertake this study. Dev Raj Adhikari 2005-3-28. ii Contents Executive Summary Acknowledgements Chapter 1 Introduction 1-24 Background to National Factors and Employment Relations 1 Changes and Developments in Employment Relations Practices 2 HRM Models 4 Why another Study in Japanese Employment Relations 6 National Factors Influencing Japanese Employment Relations 8 National Institutions 9 National Culture 11 Labour Market 12 Economic and Business Environment 12 Emerging Employment Relations Issues 13 Life-time Employment 14 Seniority Based System 15 Enterprise-based Unions 15 Framework of the Study 16 Study Approach, Companies and Checklist Used for the Study 18 Summary 18 Notes 19-24 Chapter 2 National Institutions 25-47 Historical Development 25 Post-war Institutional Development 27 The Role of Government 30 Brief Review of Labor Laws and Employment Policies 31 Labor Union Movement 35 National Level Unions 37 Industrial Federations 37 Company-based unions 37 The Current Situation of Unionization 38 Employers’ Associations 39 Education and Educational Institutions 40 Summary 43 Notes 45-47 Chapter 3 The Labor market 48-57 Brief History of the Labor Market 48 Population Growth Trends 49 Aging Population and Labor Force