Prior to the first oil crisis that began in 1973, the Japanese economy had been trending steadily upward over the long term, despite having dealt with several recessions. Known as the age of high-speed economic growth, the period was sustained by what we can describe as a “catch-up” economy, where products and technologies developed in Western countries were analyzed and modified to enhance quality and productivity. In the 1970s, Japan, in fact, had already developed into an economic giant, boasting the second largest GDP in the world, but it still retained the competitive strategies suitable for a catch-up economy. Consequently, Japanese HR practices befitting a catch-up economy were created, taking firm root in Japanese society. In a catch-up economy, people need the capacity to swiftly and accurately perform predetermined tasks, and the system of long-term employment works extremely effectively for this.
Under a long-term employment system, employees work together over many years, which makes it easier for them to understand each other’s thoughts. Their values also become aligned. When taking on predetermined tasks in a well-aligned manner, it is more efficient when those involved are alike in terms of their knowledge, skills, and perceptions. As such, corporations had reasonable grounds to offer long-term employment.
Furthermore, long-term employment and the seniority system are mutually complementary. Long-term employment is a precondition for seniority systems. Under a seniority system, younger employees work at low pay relative to their performance, but they start earning more than justified by their accomplishments when they reach middle age. To keep all their employees satisfied, corporations guarantee long-term employment. Meanwhile, employees do not seek to change jobs because they know that their pay will eventually rise if they keep working for the same company.
At the same time, long-term employment and the seniority system generate intense competition within corporations. This may seem contradictory, but it actually makes sense, because even under a seniority system, the performance of all employees is, in fact, assessed, and not all employees are promoted equally in terms of rank and salary. If some employees were to be promoted exceptionally fast while still young, a large number of employees would drop out of the race up the corporate ladder, eventually choosing not to work hard for promotion. Conversely, when employees are promoted more or less equally while young, a large portion of the workforce would stay in the promotion race over a long time. This is why Japanese corporations use an ambiguous performance assessment system, allowing all employees to be promoted roughly at the same pace both in rank and salary until the latter half of an employee’s career. This practice can be described as a “late selection” system.
Furthermore, it was the gender-segregated employment practice that made this late- selection-style competition feasible. The practice of dividing labor between male and female, where the man earns money to feed the family and the woman takes care of domestic chores and children, has its roots in Europe and the U.S. during and after the industrial revolution in heavy industries. In Europe and the U.S., the gender division of labor gradually began at around the end of the 19th century. During the 1950s and 60s, the practice reached its peak, but in the 1970s and beyond, when the economy lost its competitiveness, the situation changed, with the number of female workers increasing, backed also by social movements such as women’s lib.
In the 1970s and 80s, when women began to advance into society in Europe and the U.S., the gender division of labor belatedly became more prevalent in Japan, with men working intensively at corporations and women staying at home as “housewives.” The Japanese government also introduced some social systems, including a tax deduction for spouses and allowances for dependents, to support this family model and push forward the gender division of labor. In view of such circumstances, we can say that the gender division of labor, long-term employment, and seniority system became integral parts of Japan’s society, not because they were well suited to the society, but because they matched the “catch-up” economy. And these systems did work well and produce tangible results while Japan was still in the phase of trying to “catch up” with Western countries.
In and after the 1990s, globalization swept through the world, resulting in Japan losing cost competitiveness to emerging economies. As a matter of course, changes need to be made to Japanese-style HR strategies. Let me point out two issues here.
One is that homogeneous corporations cannot create new things. Employing workers with strong similarities was beneficial in a catch-up economy, but such uniform organizations are vulnerable to changes and are hardly innovative. They need to transform themselves into organizations that gather a diversity of talented people with different experiences and values, for example, by offering women more career opportunities and employing mid-career workers.
The other issue is the employment insecurity of individuals. As globalization and M&A become widespread, increasingly more businesses are sold on a unit basis. Corporations are reforming themselves in unprecedented ways, which force them to evaluate their personnel on the basis of their work performance and competence instead of their age and length of service, as in a conventional seniority system. However, most companies are not equipped with the expertise and skills to clarify each individual’s job description and assess them accordingly.
In the past, long-term employment, the seniority system, and the gender division of labor constituted the foundation upon which the Japanese economy could strengthen its competitiveness. Corporations and the government worked together to put in place institutions and regulations that matched these systems and practices. The establishment of a social structure where using the systems would serve one’s own interest resulted in HR practices that became woven into society. The reason why corporations are having a hard time changing their HR practices is because it requires a great deal of change in society.
How should Japanese society and its HR practices ideally change in the days to come? In my view, a “society in which everyone works a moderate number of hours” is the most productive society in a developed country. The key here is “hours.” In other words, my belief is that we should work creatively and productively in a shorter time.
Unlike economies that are striving to catch up, developed countries must constantly create new things and ideas to achieve economic growth. Productivity should improve when people work with diverse teammates, reduce their work hours, and make time to broaden their perspectives and gain new knowledge and skills. In developed countries, maximum productivity can be achieved if “everyone works a moderate number of hours.”
During the 1970s and 80s, among countries and regions that faced an aging population and declining birth rates, the U.S. and Northern Europe, among others, managed to put a stop to their declining birth rates. These were countries/regions that introduced a lifestyle model where both men and women work a moderate number of hours while performing household chores and childcare. Northern and some other European nations adopted measures to encourage couples to raise their children together and promote women’s early return to the workplace. Specifically, the governments offered direct support to double-income parenting households with full-time jobs by providing subsidies for employing nannies for nursery runs, for example, instead of promoting childcare leave and shorter work hours. Such subsidies allow parents to return to work earlier and pay their taxes and social security costs in full, which bolsters national finances. Allowing parents to work shorter hours and take childcare leave is, of course, an important measure to increase birth rates. However, a system where parents can use these programs regardless of gender and work a moderate number of hours throughout their lives—namely, a system where raising children will not be a disadvantage in building a career—will most certainly enhance the productivity of a society as a whole, benefit national finances, and bring more happiness to each individual.
Ensuring equal pay for equal work is closely associated with promoting job hopping and workplace diversity. In Japan, the phrase “equal pay for equal work” is used when talking about full-time employees and part-time employees working for the same organization. However, in the rest of the world, the expression refers to ensuring equal pay for equal work across the entire labor market, regardless of company or organization. If pay were determined based on your job, you would make the same amount of money no matter how old you are, how long you have served your company, or where you work, which would promote job hopping and workplace diversity.
To achieve equal pay for equal work in this sense, not only the workers themselves but also their superiors and HR personnel need to understand the job duties of each individual and assess their performance. Japanese corporations that have been assessing their employees under vague assessment systems are not equipped with sufficient capacity to do this, which we can say is one of the major challenges they face.
Furthermore, a shift to paying salaries commensurate with each job is also deeply associated with the issue of education expenses and scholarships. Salaries paid by most corporations are living wages composed mainly of remuneration for the work performed and allowances for dependents. In other words, corporations are giving parents their offspring’s education expenses in the form of their salaries. However, it should be our society that fosters our future generation of citizens and pays for their education expenses. Parents should be paid for the labor they perform, but their children should be directly endowed with their education expenses by society. This is social security in the genuine sense. This way, children can be offered the education they need regardless of their parents’ income, and outstanding students can receive an additional scholarship. I believe that it would be ideal if human resources fostered in this way could eventually make new achievements to shape the next iteration of society.
Putting an end to the Japanese-style late selection system will provide the younger generation with second chances in life. Even if they leave a company early in their career, they can work hard to earn an MBA degree or the like and enhance their value in the labor market to earn higher pay in their next job.
Over 20 years have passed since the Japanese HR strategies reached a turning point. Increasingly more companies, mainly global and large entities, are adopting HR management systems based on job duties and roles. However, it will take some time for the new systems to spread across the entire business community. Transforming HR strategies is critically important for putting a stop to declining birth rates and achieving a society where each and every person in Japan can maximize their potential. The future growth of Japan depends on whether each individual can design their own career, and whether companies can correctly assess each employee’s work performance and utilize HR management systems that support such initiatives.
(This column is as of 2019.)
