Work and Pay in Japan

Citation

Maguire, K. (2001), "Work and Pay in Japan", International Journal of Manpower, Vol. 22 No. 4, pp. 393-405. https://doi.org/10.1108/ijm.2001.22.4.393.2

The subject of work and pay in Japan is both timely and important. The consequences of East Asia’s 1997 economic crisis have had ramifications well beyond the region. The Japanese economy has faced continued problems throughout the 1990s not least with the difficulties that have confronted its banking and financial system. Nevertheless, Japan remains an important player in both the regional and the global economy and the health of the Japanese economy has implications not just for the other economies of Asia but also for the United States and Western Europe.

Japan provided large amounts of foreign investment into the United States and the United Kingdom and the introduction of Japanese management techniques associated with lean production and quality control required producers in a number of manufacturing industries to transform their working practices if they were to stay in business. One of the most important factors that have contributed towards post‐war Japanese economic growth has been the role of Japanese management. This has particularly been the case for human resource management and quality control. The role of work and pay in Japan is important to explaining why such management practices have been so successful in the past and to evaluate whether or not the traditional patterns of post‐war Japanese management will continue given Japan’s current demographic trends. Japan has a rapidly ageing population and a falling birth rate that is likely to see serious changes to the operation of the labour market over the next three decades.

Hart and Kawasaki’s book is an important contribution to this subject. The book is written by two of the top experts in the field. It is both scholarly and well researched while at the same time being accessible to those who are not economists. This study is likely to have a broad appeal to those who are interested in areas such as human resource management and comparative industrial relations.

Hart and Kawasaki argue that the Japanese labour market appears to differ from experience elsewhere. They point to factors such as the structure of the trade unions, the practice of pay and promotion by seniority, bonus payments, retirements and the sub‐contracting system. They also draw attention to some of the features of the Japanese system such as lower unemployment and greater employment stability particularly in cyclical downturns and to a long‐term orientated culture promoted through the interlocking ties of the keiretsu networks. In fact, the authors analyse all these issues very carefully and show that there are more similarities with the West than is at first apparent. There is a large amount of useful comparative data from both Europe and the United States to reveal an informative set of insights into the Japanese economy.

The book begins by examining Japan’s post‐war economic performance relative to other OECD countries and analysing the particular input of labour. The authors consider various explanations as to why Japanese unemployment is lower than rates in Europe and they examine the evidence on the theory of hoarded labour. The second chapter turns to labour market concepts and human capital theory. The third chapter moves on to consider the industrial relations system and the role of enterprise unions. The analysis is especially informative on the issues of wages, quality control and contains useful comparative material on Germany. The fourth chapter deals with labour costs and in particular the importance of non‐wage labour costs. These are important in Japan especially on the issue of severance pay on retirement.

Chapter five examines the bonus system which is important because it makes up a considerable amount of a worker’s pay. The authors evaluate a number of theoretical attempts to understand the system. Chapter six considers the issues of recruitment, training, promotion and retirement. This chapter is well supported by empirical evidence from a wide range of case studies. It shows that although the retirement age of Japanese workers tends to be lower than in the West, it is common for them to remain active in the labour market. The demographic changes in Japanese society are also likely to mean that retirement ages will increase towards Western levels. The situation for women in Japan is that they have fared less well in the labour market but again demographic change will have implications for their future participation in the labour market. Chapter seven reviews employment, productivity and costs over the business cycles. It concludes that Japanese manufacturing firms are more prone to hoard labour in cyclical downturns than their foreign competitors.

Chapter eight is an excellent study of small business and sub‐contracting. It explains the large numbers of small businesses and why they have survived in such numbers in Japan, especially in the retail sector. Sub‐contracting relations have tended to be longer and less formal in Japan than in the West. The section on sub‐contracting examines a number of theories such as asset specificity, game theory and buffer theory. The authors rightly conclude that the experience of sub‐contracting has been mutually beneficial to buyers and suppliers alike. The former have been able to help the latter reach higher standards of quality control through the use of value analysis and value engineering reports, secondments and training. However, the downside of this relationship is that the buyers are looking to reduce the price paid to the suppliers by passing on the improvements of the value reports and keeping costs down. The discussion is backed by major empirical studies of sub‐contracting such as those by Nishiguchi and Sako.

Although these sub‐contracting practices may have worked in the past, recent research by Miyashita and Russell has suggested that, in the 1990s, there is more evidence that buyers are squeezing suppliers in ways that would have been unheard of in the past. If this is indeed the case, then it may have dramatic implications for the sub‐contracting system in the future. Japanese manufacturing companies have tended to outsource a higher percentage of their work than their European competitors and have been reliant on the skills of the small businesses. Were there to be a decline in the number of businesses either for demographic reasons or because of increased economic hardships this would have implications for future Japanese manufacturing capability and competitiveness.

Chapter nine looks at the relationship between schooling and earning, and chapter ten concludes with some comparative observations of Japan and elsewhere. The authors consider that there is evidence of convergence between the Japanese labour market and those in the West. They also point out that in some of the newer industries, such as computer games, the pattern of employment and pay is far from the traditional one. Their study has shown why the Japanese labour market has developed as it has and how well it has served its purpose in the past. This is not to suggest that it will necessarily continue to do so. The twin problems of demographic trends and the endemic problems of the banking system may have far reaching consequences for the Japanese labour market as it enters the twenty‐first century.

Among the book’s other qualities is that it draws on recent Japanese research by writers such as Aoki that is not in his English publications and hence makes the results of such studies available to a broader audience. It has a good bibliography and the chapters have useful notes. Cambridge University Press is to be congratulated for bringing this book out in paperback format while it is still new. This development should enhance its availability to the wider audience that this valuable contribution to the study of the Japanese economy will most certainly find.