Japan - Employment and Labor Relations

Aging and Retirement of the Labor Force

Japan's population is aging. During the 1950s, the percentage of the population in the sixty-five-and-over group remained steady at around 5 percent. Throughout subsequent decades, however, that age-group expanded, and by 1989 it had grown to 11.6 percent of the population. It was expected to reach 16.9 percent by 2000 and almost 25.2 percent by 2020. Perhaps the most outstanding feature of this trend was the speed with which it was occurring in comparison to trends in other industrialized nations. In the United States, expansion of the sixty-five-and-over age-group from 7 percent to 14 percent took seventy-five years; in Britain and the Federal Republic of Germany (West Germany), this expansion took forty-five years. The same expansion in Japan was expected to take only twenty-six years.

As Japan's population aged, so did its work force. In 1990 about 20 percent of the work force was made up of workers aged fifty-five and over. The Ministry of Labor predicted that by 2000 about 24 percent of the working population (almost one in four workers) would be in this age-group. This demographic shift was expected to bring about both macroeconomic and microeconomic problems. At the national level, Japan may have trouble financing the pension system. At the corporate level, problems will include growing personnel costs and the shortage of senior positions. If such problems become severe, government will be forced to develop countermeasures.

In most Japanese companies, salaries rise with worker age. Because younger workers are paid less, they are more attractive to employers, and the difficulty in finding employment increases with age. This pattern is evidenced by the unemployment rates for different age-groups and by the number of applicants per job vacancy for each age-group in openings handled by public employment offices. As the Japanese population ages, such trends may grow.

Most Japanese companies require that employees retire upon reaching a specified age. During most of the postwar period, that age was fifty-five. Because government social security payments normally begins at age sixty, workers are forced to find reemployment to fill the five-year gap. However, in 1986 the Diet passed the Law Concerning the Stabilization of Employment for Elderly People to provide various incentives for firms to raise their retirement age to sixty. Many Japanese companies raised the retirement age they had set, partly in response to this legislation. And despite mandatory retirement policies, many Japanese companies allow their employees to continue working beyond the age of sixty--although generally at reduced wages. People over sixty continue to work varied: to supplement inadequate pension incomes, to give meaning to their lives, or to keep in touch with society.

As Japan's population ages, the financial health of the public pension plan deteriorates. To avoid massive increases in premiums, the government reformed the system in 1986 by cutting benefit levels and raising the plan's specified age at which benefits began from sixty to sixty-five. Under the revised system, contributions paid in equal share by employer and employee were expected to be equivalent to about 30 percent of wages, as opposed to 40 percent of wages under the old system. However, problems now arose in securing employment opportunities for the sixty-to-sixty-five agegroup .

In 1990 some 90 percent of companies paid retirement benefits to their employees in the form of lump-sum payments and pensions. Some companies based the payment amount on the employee's base pay, while others used formulas independent of base pay. Because the system was designed to reward long service, payment rose progressively with the number of years worked.

Labor Unions

Japan's 74,500 trade unions were represented by four main labor federations in the mid-1980s: the General Council of Trade Unions of Japan (Nihon Rodo Kumiai Sohyogikai, commonly known as Sohyo), with 4.4 million members--a substantial percentage representing public sector employees; the Japan Confederation of Labor (Zen Nihon Rodo Sodomei, commonly known as Domei), with 2.2 million members; the Federation of Independent Labor Unions (Churitsu Roren), with 1.6 million members; and the National Federation of Industrial Organizations (Shinsanbetsu), with only 61,000 members. In 1987 Domei and Churitsu Roren were dissolved and amalgamated into the newly established National Federation of Private Sector Unions (Rengo); and in 1990 Sohyo affiliates merged with Rengo . Local labor unions and work unit unions, rather than the federations, conducted the major bargaining. Unit unions often banded together for wage negotiations, but federations did not control their policies or actions. Federations also engaged in political and public relations activities.

The rate of labor union membership, which was 35.4 percent in 1970, had declined considerably by the end of the 1980s. The continuing long-term reduction in union membership was caused by several factors, including the restructuring of Japanese industry away from heavy industries. Many people entering the work force in the 1980s joined smaller companies in the tertiary sector, where there was a general disinclination toward joining labor organizations.

The relationship between the typical labor union and the company is unusually close. Both white- and blue-collar workers join the union automatically in most major companies. Temporary and subcontracting workers are excluded, and managers with the rank of section manager and above are considered part of management. In most corporations, however, many of the managerial staff are former union members. In general, Japanese unions are sensitive to the economic health of the company, and company management usually brief the union membership on the state of corporate affairs.

Any regular employee below the rank of section chief is eligible to become a union officer. Management, however, often pressures the workers to select favored employees. Officers usually maintain their seniority and tenure while working exclusively on union activities and while being paid from the union's accounts, and union offices are often located at the factory site. Many union officers go on to higher positions within the corporation if they are particularly effective (or troublesome), but few become active in organized labor activities at the national level.

During prosperous times, the spring labor offensives are highly ritualized affairs, with banners, sloganeering, and dances aimed more at being a show of force than a crippling job action. Meanwhile, serious discussions take place between the union officers and corporate managers to determine pay and benefit adjustments. If the economy turns sour, or if management tries to reduce the number of permanent employees, however, disruptive strikes often occur. The number of working days lost to labor disputes peaked in the economic turmoil of 1974 and 1975 at around 9 million workdays in the two-year period. In 1979, however, there were fewer than 1 million days lost. Since 1981 the average number of days lost per worker each year to disputes was just over 9 percent of the number lost in the United States. After 1975, when the economy entered a period of slower growth, annual wage increases moderated and labor relations were conciliatory. During the 1980s, workers received pay hikes that on average closely reflected the real growth of GNP for the preceding year. In 1989, for example, workers received an average 5.1 percent pay hike, while GNP growth had averaged 5 percent between 1987 and 1989. The moderate trend continued in the early 1990s as the country's national labor federations were reorganizing themselves.

Working Women

Japanese women are joining the labor force in unprecedented numbers. In 1987 there were 24.3 million working women (40 percent of the labor force), and they accounted for 59 percent of the increase in employment from 1975 to 1987. The participation rate for women in the labor force (the ratio of those working to all women aged fifteen and older) rose from 45.7 percent in 1975 to 50.6 percent in 1991 and was expected to reach 50 percent by 2000.

The growing participation of women reflected both supply and demand factors. Industries such as wholesaling, retailing, banking, and insurance have expanded, in large part because of the effective use of women as part-time employees.

The Structure of Japan's Labor Market

The structure of Japan's labor market was experiencing gradual change in the late 1980s and was expected to continue this trend throughout the 1990s. The structure of the labor market is affected by the aging of the working population, increasing numbers of women in the labor force, and workers' rising education level. There is the prospect of increasing numbers of foreign nationals in the labor force. And, finally, the labor market faces possible changes owing to younger workers who sought to break away from traditional career paths to those that stressed greater individuality and creativity.

Workers' Changing Attitudes

The success of corporations in Japan is attributable to the remarkable motivation of its workers. Also behind this corporate prosperity is the workers' strong sense of loyalty to and identification with their employers. While many theories have evolved to explain the extraordinary attitude of Japanese workers, perhaps the most noteworthy is that of personnel management. This view holds that loyalty to the company has developed as a result of job security and a wage system in which those with the greatest seniority reap the highest rewards. Such corporate structure presumably fostered not only a determined interest in the company but also a low percentage of workers who changed jobs.

During the postwar economic reconstruction, the backbone of the labor force was, of course, made up of people born before World War II. These people grew up in a Japan that was still largely an agriculturally based economy and had little material wealth. Moreover, they had suffered the hardships of war and had accepted hard work as a part of their lives. In the late twentieth century, these people were being replaced by generations born after the war, and there were indications that the newcomers had different attitudes toward work. Postwar generations were accustomed to prosperity and were also better educated than their elders.

As might be expected, these socioeconomic changes have affected workers' attitudes. Prior to World War II, surveys indicated that the aspect of life regarded as most worthwhile was work. During the 1980s, the percentage of people who felt this way was declining. Workers' identification with their employers was weakening as well. A survey by the Management and Coordination Agency revealed that a record 2.7 million workers changed jobs in the one-year period beginning October 1, 1986, and the ratio of those who switched jobs to the total labor force matched the previous high recorded in 1974. This survey also showed that the percentage of workers indicating an interest in changing jobs increased from 4.5 percent in 1971 to 9.9 percent in 1987.

Another indication of changing worker attitudes is the number of people meeting with corporate scouts to discuss the possibility of switching jobs. Corporations' treatment of older workers also affects attitudes: there are fewer positions for older workers, and many find themselves without the rewards that their predecessors had enjoyed.

Employment and labor relations

Rising labor productivity, particularly in the manufacturing industries, contribute significantly to the nation's economic development. Labor productivity was unusually high in the late 1970s, when Japan's wages first become competitive with other industrialized nations. But productivity rose at an annual average rate of only 2.6 percent between 1978 and 1987. At the same time, Japan was able to keep its unemployment rate between 2.8 and 2.2 percent from 1987 to 1992. The structure of the nation's employment system and relatively harmonious labor-management relations were two of the reasons for this enviable performance.

Foreign Workers

Traditionally, Japan has had strict laws regarding the employment of foreigners, although exceptions were made for certain occupational categories. Excepted categories have included executives and managers engaged in commercial activities, full-time scholars associated with research and education institutions, professional entertainers, engineers and others specializing in advanced technology, foreign-language teachers, and others with special skills unavailable among Japanese nationals.

The problems of foreign workers in the labor force were expected to continue throughout the 1990s. Despite the long-term upward trend in the unemployment rate, many unpopular jobs go unfilled and the domestic labor market is sluggish. Imported labor is seen as a solution to this situation by some employers, who hire low-paid foreign workers, who are, in turn, enticed by comparatively high Japanese wages. The strict immigration laws are expected to remain on the books, however, although the influx of illegal aliens from nearby Asian countries to participate in the labor market is likely to increase.

Social Insurance and Minimum Wage Systems

Companies in Japan are responsible for enrolling their employees in various social insurance systems, including health insurance, employee pension insurance, employment insurance, and workers' accident compensation insurance. The employer covers all costs for workers' accident compensation insurance, but payments to the other systems are shared by both employer and employee.

The Minimum Wage Law, introduced in 1947 but not enacted until 1959, was designed to protect low-income workers. Minimum wage levels have been determined, according to both region and industry, by special councils composed of government, labor, and employment representatives.

Employment, Wages, and Working Conditions

Japan's work force grew by less than 1 percent per year in the 1970s and 1980s. In 1991 it stood at 62.4 percent of the total population over fifteen years of age, a level little changed since 1970. Labor force participation differed within age and gender groupings and was similar to that in other industrialized nations in its relative distribution among primary, secondary, and tertiary industries. The percentage of people employed in the primary sector (agriculture, forestry, and fishing) dropped from 17.4 in 1970 to 7.2 in 1990 and was projected to fall to 4.9 by 2000. The percentage of the Japanese labor force employed in heavy industry was 33.7 in 1970; it dropped to 33.1 in 1987 and was expected to be 27.7 in 2000. Light industry employed 47 percent of the work force in 1970 and 58 percent in 1987. The sector was expected to employ 62 percent by 2000. Throughout the 1970s and 1980s, well over 95 percent of all men between the ages of twenty-five and fifty-four were in the work force, but the proportion dropped sharply after the usual retirement age of fifty-five (by 1990 the retirement age for most men had risen to sixty). Women participated most actively in the job market in their early twenties and between the ages of thirtyfive and fifty-four. The unemployment rate (2.2 percent in 1992) was considerably lower than in the other industrialized nations.

Wages vary by industry and type of employment. Those earning the highest wages are permanent workers in firms having more than thirty employees and those workers in finance, real estate, public service, petroleum, publishing, and emerging high-technology industries earned the highest wages. The lowest paid are those in textiles, apparel, furniture, and leather products industries. The average farmer fares even worse.

During the period of strong economic growth from 1960 to 1973, wage levels rose rapidly. Nominal wages increased an average of 13 percent per year while real wages rose 7 percent each year. Wage levels then stagnated as economic growth slowed. Between 1973 and 1987 annual nominal and real wage increases dropped to 8 percent and 2 percent, respectively. Wages began rising in 1987 as the value of the yen sharply appreciated. In 1989 salaried workers receiving the highest average pay hikes over the previous year were newspaper employees (6.7 percent), followed by retail and wholesale workers (6 percent) and hotel employees (5.7 percent). Workers in the steel (2.5 percent) and shipbuilding (4.2 percent) industries fared worse. The salaries of administrative and technical workers were about 20 percent higher than those of production workers. In the late 1980s, with wages in manufacturing firms having 500 or more workers indexed at 100, enterprises with 100 to 499 employees were indexed at 79, those with thirty to ninety-nine employees at 64, and those with five to twenty-nine employees at 56.6. The gap between wages paid to secondary school and college graduates was slight but widened as the employees grew older; wages peaked at the age of fifty-five, when the former received only 60 to 80 percent of the wages of the latter.

Workers received two fairly large bonuses as well as their regular salary, one mid-year and the other at year's end. In 1988 workers in large companies received bonuses equivalent to their pay for 1.9 months while workers in the smallest firms gained bonuses equal to 1.2 months' pay. In addition to bonuses, Japanese workers received a number of fringe benefits, such as living allowances, incentive payments, remuneration for special job conditions, allowances for good attendance, and cost-of-living allowances.

Working conditions varied from firm to firm. On average, employees worked a forty-six-hour week in 1987; employees of most large corporations worked a modified five-day week with two Saturdays a month, while those in most small firms worked as much as six days each week. In the face of mounting international criticism of excessive working hours in Japan, in January 1989 public agencies began closing two Saturdays a month. Labor unions made reduced working hours an important part of their demands, and many larger firms responded in a positive manner. In 1986 the average employee in manufacturing and production industries worked 2,150 hours in Japan, compared with 1,924 hours in the United States and 1,643 in France. The average Japanese worker is entitled to fifteen days of paid vacation a year but actually took only seven days.

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