Changes in Japanese Employment Practices and Business Behavior

No.014
April 1997
Fujitsu Research Institute
Japan Center for Economic Research

1. The Japanese-style employment system is characterized by long-term continuous employment, a seniority-based wage system, and company unions. Following the high-growth period, Japan's economic recession has threatened the collapse of this system, but thus far it still remains. This report focuses on long-term continuous employment and the seniority-based wage system and investigates how the Japanese-style employment system will change in the medium term.
2. The long-term continuous employment system is not unique to Japan. In Europe and the U.S. as well, long-term continuous employees exist alongside a more fluid class of employees as part of a bipolar structure of employment. What is characteristic about Japan's system, however, is that only the younger workforce is fluid, and long-term continuous employment is the most common form for older workers.
3. The seniority-based wage system is also analogous to trends found in Europe and the U.S. where wage increases as age rises. Compared with Europe and the U.S., however, the age-related wage gap in Japan is much greater. Furthermore, wages plateau at age 40 in Europe and the U.S., whereas in Japan it is common for wages to continue to increase.
4. To investigate attitudes regarding the Japanese-style employment system, we surveyed 4,000 employers (with a 23.9% response rate) within a 40-kilometer zone in the Tokyo metropolitan area during November and December 1996. The results show that the younger workers and employees in small companies tend to be negative toward Japanese-style employment. Furthermore, evaluations of the system demonstrate great variation depending on age and income, as well as on type of job and industry. Specifically, manufacturing and service sector workers tend to be the most negative about the Japanese-style system, while finance and insurance workers tend to be positive. Additionally, workers in highly competitive industries show an unfavorable opinion regarding the Japanese-style employment system.
5. Drawing on changes in Japan's industrial structure, there is a strong possibility that the number of companies that use a long-term continuous employment system will gradually decline, while the seniority-based wage system will collapse at a faster rate. As a result, wage gaps amongst employees of the same age and with the same length of employment may grow in the future.
6. According to the results of the survey, negative opinions regarding the Japanese-style employment system are strong amongst highly competitive industries, and the destruction of this system may actually have positive effects on corporate competitiveness and vitality.

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