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Labor market segmentation in Japan: how rigid is it?

Labor market segmentation in Japan: how rigid is it?

In Japan, segmentation largely refers to two sets of firms, large and small, rather than to two sets of jobs, primary and secondary, as in the United States. The size of a firm in Japan is an unusually powerful factor that makes firms and employees behave differently. These differences are observable in all aspects of management, technology, and human resource utilization. Large firms are characterized by elaborate rules, procedures, and processes of "internal labor markets.' They can therefore be considered constituting an "internal labor-market sector.' This syndrome is entrenched in firms large enough to employ 1,000 or more workers; however it may begin to appear in firms with 500 or so employees. Five or six hundred workers are considered about the maximum size of work force that an owner-manager or a general manager can personally manage.

Three distinct features of employment practices in the internal labor-market sector are already well-known: life-time employment, seniority wages, and enterprise-based and -confined labor unions. Quantitatively, firms in this sector show a higher degree of employment security and a more powerful role of the length of service as a wage determining factor than their U.S. counterparts. The prominence of the sector relative to the rest of the economy may be seen from more pronounced productivity and wage differentials by size of firm in Japan than in the United States (manufacturing census figures). These defining characteristics of labor market segmentation are not free of controversy, but a brief look at past events would leave far less doubt for Japan than for the United States about the plausibility of labor market segmentation as a real phenomenon.

Japan in 1920 was one of the five leading powers of the world. Its development was certainly that of a market economy, though with State guidance and participation. However, it was not yet a full-fledged "capitalist' development: the tardy growth of the labor market limited the growth of a proletariat much needed for exploitation by the capitalists. Japan's difficulty in generating a proletariat appropriate to a capitalist economy was attributed in large part to the nature of Japan's absolutist state under the imperial Constitution (1889-1947) as a family system, "meaning a [state] system of legal and political organization whereby the family is the major unit of social organization, is a legal personality in which property rights and duties are vested, and is represented externally by a family head who exercises wide powers of control over family members.'

Before the Second World War, many large Japanese firms were family-owned or controlled. Their organizational form was Zaibatsu, a conglomerate of diversified enterprises held by interlocking directorates under a family-controlled holding company (or its equivalent). The four largest Zaibatsu were household names throughout the world: Mitsui, Mitsubishi, Sumitomo, and Yasuda. How families control giant firms even today can be seen from the examples of Matsushita and Toyota.

Company acculturation

During the postwar period into the 1970's, the transaction-cost minimizing advantages of "the family' metaphor weakened, and management could no longer depend upon worker incentives and discipline resulting from the shared image of the company as a family. Furthermore, the postwar family was no model for any organization that required authority and responsibility for getting work done.

The Japanese employment system that emerged from the consolidation of labor market may well be called "management by company culture.' Culture now takes the place of erstwhile paternalism. It is well known that well-run Japanese companies are making constant efforts to shape and maintain a corporate identity that is distinct and unique enough to motivate employee identification with it. The culture-conscious Japanese companies devote enormous attention to the recruitment of compatible employees. The general practice is to recruit employees once a year in the spring, fresh out of schools or colleges, according to careful long-run manpower plans. These companies regularly hire from the nation's best universities and maintain a stable mix of employees by university origin. Blue-collar recruitment also runs by school or regional origin. Informal groups formed by college, school, or regional ties mesh with formal work groups. The "old boys' network is automatically stratified by year of graduation and can be used as an instrument for orderly acculturation and training of employees through senior-junior (senpai-kohai) relationships. Several "old boys' groups in a company also generate competition for performance among them. Each group probably desires to maximize its share in good positions and promotions. So long as personnel procedures and evaluations are objective and unbiased, competition among these groups may be channeled into higher aggregate performance (although it might also degenerate into dysfunctional office politics). The role of a company culture is to integrate competing groups and individuals into a harmonious whole to ensure the aggregate vitality of the firm.

The enterprise labor union also facilitates this cultural integration by taking up all nonmanagerial white-collar and blue-collar workers, regardless of their educational backgrounds. The union then can be viewed as a crucible of social democracy within the enterprise, although managers and organized employees of the internal labor-market sector as a whole constitute an elite of the labor force vis-a-vis the rest of the working population of the national economy.

Large versus small and medium

The modernization of "the family' and interpersonal relations within it since the postwar democratic revolution has proceeded unevenly in different socioeconomic strata. Studies of lower middle-class merchants and artisans indicate a strong survival of the prewar type of family and its application to employment relationships. Generally, small and medium-sized enterprises contitute a noninternal labor-market sector (the dual of the internal labor-market sector where the Japanese employment system obtains) and labor-market indicators like labor turnover, length of service, cyclical sensitivity of employment, and so forth which are those of relatively open, fluid labor markets. These enterprises obviously make up for the lower wages and less attractive working conditions than in the internal labor-market sector by offering a "psychic income' of a family atmosphere, familiar to their employees. Furthermore, employees in the noninternal labor-market sector are, in a sense, residuals, dropouts or failures vis-a-vis their peers picked by firms in the internal labor-market sector.

They are likely to be from the social strata which, because of their relative backwardness, have lagged in modernization and still retain relatively greater doses of traditional values and practices. The familiar syndrome of factors that generates "occupational inheritance' is also observed in Japan.

From a different point of view, the employers and employees in small and medium-sized enterprises are the average Japanese, and those in the internal labor-market sector, an exception. On the basis of employment statistics by establishment size, regular employees in private establishments (employing 500 or more regular employees), public enterprises, and civil service amounted to 16 percent of the Japanese labor force in 1981. This is roughly the size of the internal labor-market sector in Japan by sheer head count (9 million). The smallness of this sector enables it to choose the cream of the crop. The employees of this internal labor-market sector themselves are also conscious of their elitist position. The labor market segmentation of this kind does not generate the classic classes of capitalists (or corporations) and workers with distrust, misgivings, or even animosity between them. The major divide is between large bureaucratized firms in this sector and the small and middling enterprises, mostly family-run or -controlled, in the noninternal labor-market sector. Tensions exist and occasionally flare up between large firms and small firms as in the case of an organized protest by local store owners against the plan of a large national distributor to open a branch in their midst. Large firms have long since realized the limits to direct expansion at the expense of smaller firms and, instead, actively organized the smaller ones into networks of close business relationships known as Keiretsu (lining them up). However, the transaction costs in getting things done through a Keiretsu, involving hundreds of smaller, but independent firms, are apparently lower than the large firm itself expanding in the equivalent scale to internalize the network. Thus, some workable peace obtains between large and small firms. It is noteworthy that resilience and political sophistication of small firms limit the physical growth of large firms and direct the attention of the latter to "social' leadership over a multiplicity of lesser firms.

The employees of the internal labor-market sector are organized into enterprise employee unions and largely coopted into a sharing system of the elite sector through collective bargaining and joint consultation. Enterprise unions see no community of interest with the unorganized employees of smaller enterprises as exemplified by an almost total absence of effort on the part of the established unions to organize the unorganized. The basic behavioral determinant is the union's "enterprise consciousness' meaning that for their well-being, employees depend on their employer's prosperity and that the union's role is to ensure a "fair share' in the employer's prosperity.

With no horizontal (class) solidarity among workers, employees in the noninternal labor-market sector perceive themselves as being in the employee status only as long as they learn the skills and accumulate the resources to strike out on their own. This "Japanese dream' does not become a reality for a majority of wage-earners in this sector, but it does for a substantial number of them, who set and maintain the entrepreneurial propensity. For a major capitalist-market economy, Japan still has an unusual proportion of the labor force in self-employment (together with family workers, 27 percent of the labor force in 1981) and an unusual proportion of the nonagricultural private regular employment in the smallest establishments with fewer than 30 employees (48 percent in 1981).

For more than half of Japan's economically active population, "employer' and "employee' do not imply sharp status differences, let alone "class consciousness.' Where class consciousness should have arisen, and did for a while after the war, namely the internal labor-market sector, employees are the secure members of the nation's elite. Labor market segmentation has thus created in Japan a social stratification that the known formulae of differentiation have difficulty in explaining. However, the upshot of certain developments in Japan: inflation; employment cutbacks, despite lifetime employment; more extensive use of part-time, temporary, or seasonal workers; equal employment opportunity legislation for women; the raising of the mandatory retirement age from 55 to 60; and weakened union activity at the enterprise level (causing them to turn to national consolidation and economic policy) is the propsect of less segmentation. The internal labor markets of major firms cease to be the monopoly of standard male regular workers, recruited fresh out of schools and colleges with expectations to serve out their term until mandatory retirement.
COPYRIGHT 1986 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1986 Gale, Cengage Learning. All rights reserved.

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Author:Taira, Koji
Publication:Monthly Labor Review
Date:Jun 1, 1986
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