Changes In Employee Relations In Japan Commerce Essay


It was commonly held that the phenomenal post-war success of Japan is the apparent commonality of interest between the organisation and its workforce. Japanese workers are viewed as being more committed than their Western counterparts: they strike less, take fewer holidays, work longer hours and contribute more to suggestion schemes (Kono and Clegg 2004). In this report, it will identify the main changes and consistencies in the employee relations practices in Japan. First, it will identify the changes of wage system and why these occurring. Second, what changes are happening to 'lifetime employment' system will be addressed and why these occurring. Third, it will identify the changes of enterprise unions and analyse the role of key factors in driving these changes.

Japanese employee relations system

The Japanese employee relations system is traditionally characterised by the three treasures. They are respectively Nenko seniority wage system, Lifetime employment system and enterprise unions.

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Nenko seniority wage system is a system which based on age and length of service. It encourages workers to stay with company. Under this wage system limited salary disparity between white and blue collar workers (Berggren and Nomura 1997). There is little reference to external labour market. In another word, the longer you are with the company, the more you are going to be paid.

Lifetime employment system: employers recruit straight from college - inter-firm movement discouraged, it is a demonstration of commitment by the company. Under lifetime employment system workers in the company won't be afraid of making suggestions. Companies are willing to invest in training (Morishima, 1995) with emphasis on company-specific skills. In the company it will encourages skill formation and internal career development (Salrion 2004). It is not contractual rather a particular way of thinking by both employee and employer (Kono and Clegg 2001)

Enterprise unions: generally there is one union per company, and the union 'has a co-operative attitude towards management' (Kuwahara 2004). They will often moderate their pay claims to take account of the company's financial situation. About 16% of top management have served as union leaders (Kono and Clegg 2001) Part of the 'community of shared fate' (Kuwahara 2004)

Changes and factors in the employee relations

Wage System

The seniority wage system (SWS), biannual bonus and retirement bonus systems were introduced or more precisely, extended from the managerial staff to core production workers in the 1920s not only as incentives for continued service in the company, but also for the purpose of promoting cooperative and peaceful labour-management relations (Sumiya, 1976). 'Densan model' is regarded as the first scientifically established wage system in Japan (Watanabe, 2000). The SWS did change significantly with respect to both its structure and the proportion of workers it covered. From the beginning, employers were not happy with the Densan model, which they felt contained few efficiency incentives.

The Japanese wage system has been undergoing far more drastic changes than the employment system. Firms need to modify their wage systems in order to reduce the cost of the lifetime employment system, and the average wage rate is now high enough for workers to accept it. The most persistent trend of how the structure of the basic wage has changed is the increasing diversification of wage fixing patterns within individual firms (Watanabe, 2000). Scheduled cash earnings were regular monthly wages in the old wage system, consisting of a basic wage. The basic wage was composed of a personal wage, a job wage and an age-linked wage.

Show as table 1 below.


Table 1 Structure of old wage system

The basic wage of almost all employees in the firm was raised every year in the old wage system in accordance with an employee's age, seniority and relatively generous performance evaluations from their section managers (Shibata, 2000). The new wage system involved three major changes. First, the age-linked wage was abolished. The age-linked wage had been automatically raised until the age of 50 and then held constant until the age of 60, when retirement typically occurred.

Second, the difference between the personal wage and the job wage in the old wage system was vague. In the new system the personal and job wages were integrated into a new personal wage category. (Show in table 2.) The new personal wage of a model employee is determined by both mandatory wage increase and performance-appraisal-based wages in the new system. The final change made in new wage system concerns performance appraisals and promotions. The new system does partially reflect an employee's age and seniority; it has no specifically age-linked wage increases.

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Table 2 Comparison of old and new wage system

To sum up, the portion of work-based elements in wages has grown and that age-based living-wage elements diminished over time. At least for the managerial class in certain groups of large firms, living wages appear to be replaced with work-based wages.

Lifetime employment system

It appears that the lifetime employment system in Japanese large firms is changing (Sethi, Namiki and Swanson 1984). It is not clear why it is happening or how firms are responding to it. According to Haitani (1978) lifetime employment practices cannot be sustained when Japanese economic growth levels off and when older workers became too numerous. Moreover, as Japanese organizations seek to develop flexibility in a rapidly changing global environment, lifetime employment will become a terrible burden for management (Abegglen and Stalk 1985). On the employee side, mid-career managers and workers now find themselves waiting in long lines for promotion. The temptation may be strong to abandon security for the chance to obtain better positions in other firms. As for entry-level workers who are able and skilled, they have developed a new confidence that a job will always be available, given the low level of unemployment in recent years. In this situation there is no reason to seek job security guarantees.

If the lifetime employment system is threatened, what are firms doing about it? Some companies are abandoning the system, according to the flood of news reports on the topic in the Japanese press. Most, however, are taking steps to retain the practice, either for cultural, control, economic, or motivational reasons. We attempted to develop and test a change model in our research. Not only would it help researchers understand changes in Japanese management practices, but also the steps firms are taking to save the system might provide useful information in explaining why lifetime employment is used in the first place.

Clearly Japanese firms want to save some form of lifetime employment, and they are doing it through early retirements and occasional layoffs of temporary staff. None of the variables in the model were related to type of industry, economic conditions, or to the presence of an enterprise union. Thus the decline in lifetime employment is not due to labour market demand or competitive conditions. It appears to be the effect of an ageing, costly workforce and of changes in work values in Japanese society.

Whatever explanations which cause the change of lifetime employment system, particularly in 1998 and 1999 can be offer as following. First and foremost, for the reasons that the rate of unemployment rose considerably in the second half of the 1990s, surpassing 3per cent in 1995 and 4 per cent in 1998 and approaching 5 per cent in 1999 (Watanabe, 2000). Second, the incidence of 'early retirement' - that is, retirement taken before contractual age with the encouragement of a premium bonus - and dismissal also increased shockingly in connection with restructuring and business failures.

Enterprise unions

Also there is a very low density of enterprise unions in small companies (Kuwahara 2004). Unions don't usually accept non-core employees. Enterprise unions suggest union members benefit from a 17% union wage premium and reduced age dispersal. They state 'we conclude that labour unions in Japan pay a significant role in improving worker's compensation packages ' Weathers and North (2009) argue that enterprise unions more likely to support company than workers in disputes. As a report showed that, low levels of density of enterprise unions in Japan falling from 31% in 1980 to 18-19% in 2005 (Japan Statistical Yearbook 2008). Although density varies significantly across sectors from 45% education in to 4% in services in 2008 (Japan statistical Yearbook 2008).

As Lonien (2003) state in his book, "there is a gradual disappearance of the enterprise union". Since the lifetime employment and seniority wage system are doomed to failure, the general equilibrium between the three pillars is threatened and it is doubtful whether the enterprise union will be able to survive under its current form. The crux of the argumentation is that increased future uncertainty, which related to future employment patterns and the future wage system, "will bring more claims on behalf of employees who are affected by these measures and this is likely to trigger more virulent social conflicts that are likely to shake corporate harmony" (Lonien, 2003). It is thus the current poor economic situation is threatening the power of the enterprise union.

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There is another change that threatens the future viability of the enterprise union. "If globalisation means the unbundling of the Zaibatsu, group member firms will become increasingly independent and lifetime employment will collapse" (Lonien, 2003). This means that training and motivating employees will become much more difficult since the latter won't benefit anymore from a lifelong employment guarantee. Moreover, tougher competition on world market will insinuate that work conditions of Japanese employees will deteriorate quickly and doubt the future power of enterprise unions much more. These unions will become increasingly powerless since they do not know anymore how to satisfy the claims of their members in the future.


In conclusion, this paper of work devoted to identify the main changes and consistencies in the employee relations practices in Japan. And analyse the role of key factors in driving these changes. First, it will identify the changes of wage system which is developing from Densan model and SWS to performance-based wage system. Second, what changes are happening to 'lifetime employment' system will have been addressed. The decline in lifetime employment appears to be the effect of an ageing, costly workforce and of changes in work values in Japanese society. Third, it identified the changes of enterprise unions and finds out that the gradual disappearance of the enterprise union was because of globalisation.