5
Economics 110 Japan --- Notes for February 28
The Japanese Labor Market
1. Basic Characteristics of Japanese Industrial Relations
1. Seniority Wages
2. Dual Labor Markets
3. Permanent Employment
4. Enterprise Unions; Joint Labor-Management Consultation; Quality Circles
5. Wage Flexibility
2. Seniority Wages
a. Wages rise with age for all workers in Japan, similar to white collar workers in
the United States
b. Higher growth of wages from employment to peak in Japan
c. Real wages decline after age 50, unlike the US
d. Japanese workers are paid monthly, not hourly as in the USA
e. Pay is much more related to experience within the company. Tenure with other
companies is not very relevant.
f. For the annual increment and for promotions, merit rating is very important --- no
strict seniority system
1. ratings are very subjective (but supervisors are also monitored by workers
for fairness)
g. Role of the semi-annual bonus --- a form of profit-sharing!
h. Intra-firm wage differentials are narrower in Japan than in the United States
1. Also less status differentiation
2. smaller pay gap between managers and workers than in the USA
i. Widespread job rotation --- training is more general
1. workers work in teams
2. workers can do unusual jobs, such as repair
3. allows the use of fewer workers and fewer supervisors
j. More hours per week than the USA --- work more hours than they desire
1. The standard work week was reduced to 40 hours in 1993. Yet the proportion
of employees working 60+ hours per week is increasing, despite complaints
k. Low absentee rates --- sick pay provisions = 60% of regular pay
1. No substitutes --- workgroup pressure
2. Importance of merit ratings
l. Explanation: goes with a strategy of continuous innovation technologically ---
continuous OJT
m. Wage growth in the non-agricultural sector was actually negative since the late
1990s
3. Dual Labor Market
a. Version 1: Role of small companies (not a valid theory today)
b. Version 2: Primary sector --- skills are low but develop with experience
Lower Primary sector --- skills are high but do not develop with experience (craft
production)
Secondary sector --- skills are low and do not improve
c. Shigaiko and Temporaries --- no seniority wages nor permanent employment
1. over 46% were working part-time in 2003 compared to 29-35% in 1985-90
2. In 2003, female part-time workers earned 44% of males full-time workers
d. Japanese Women
1. Higher wage gap than in the USA
2. Expected to drop out of the labor force upon marriage
3. heavily in self-employment
4. female median weekly earnings of full-time workers as a percent of male rose
from 58.7% in 1979-81 to 63.6% in 1994-98, compared to 76.3% in the USA in
1998
5. proportion of private sector managerial positions held by women rose from 5%
in 1990 to 8% in 2001 – cf 45% in the USA
6. both the pension system and the tax system have provisions that discourage
wives from working
e. No large immigrant group nor underclass in Japan
4. Permanent Employment
a. for about 1/3 of workers only. But part-time and temporary workers rose from
18.8% of employment in 1990 to 25.5% in 2002
b. No separate market for young people in Japan as in the USA. But the rate of
idleness (not employed or in school) among people age 15 to 24 has risen in the
1990s – more crime and lower growth of productivity)
1. short period of job shopping
2. formal education less important in skill development; more for screening
c. low turnover rates from age 20 to 49, even in smaller companies
1. implicit code not to hire people from other companies
d. retire at 60 with a lump sum = 5 months to 3 years' income --- then take jobs with
smaller companies (pay reduction of 25%)
1. higher labor force participation rate of men age 60 to 74 than in the USA
e. recessions --- first tried to reduce work hours. Then effect temporary transfers
Finally, redundancies with no seniority system. Older workers are more vulnerable
to redundancy.
f. reasons: use of firm-specific skills; payoff for lower wages; or use of peer group
control by keeping workers together for a long time
5. Enterprise Unionism
a. more highly unionized than the USA
b. organized on an enterprise basis; no national unions in collective bargaining as in
the USA
1. includes all members of the enterprise, up to low level managers
2. no professional union employees; those in the company who lead the union are
often promoted into management
c. the Spring Offensive -- all unions bargain at the same time leads to less
leapfrogging
1. strikes are typically ½ day and announced well in advance
d. Wages rise less than productivity – evidence that unions have a small effect on
wages
e. Since the mid-1990s:
1. employers have relied more on merit rating than on seniority (who will now
train younger workers?)
2. spring labor negotiations have pushed less for general wage increases and more
for job security
3. weakening of the participatory practices
4. greater worker dissatisfaction
6. Joint Labor Management Consultation
a. Use of joint teams to make some decisions
b. Quality Control Circles
c. Grievance procedures
d. These practices weakened in the 1990s
7. Wages in Japan are more downwardly flexible than in the USA
a. Companies can adjust to a decline in demand by lowering wages rather than
increasing unemployment
b. Hours are also more flexible, due to the large amount of overtime and the long
work year as well as the use of part-timers
c. Employment is less flexible in Japan than in the USA
8. Vulnerabilities of the System
a. Depends on low rates of unemployment --- 1990 on
b. Puts the greatest strain on older workers who will become more numerous
c. depends on worker loyalty (new generation may not value loyalty as highly)
d. depends on exporting
e. depends on the subservience of women --- vulnerable to the feminist movement
The Japanese Government
1. Rejection of laissez faire
a. Japanese history of government involvement back to 1868
2. Industrial Policy: a conscious attempt to change the behaviors of specific
industries in order to affect performance
a. concern with whole industries, not specific companies
b. the government influences the rules and institutions of the market
3. Necessary Conditions:
a. Institutional Capacity: the importance of the central bureaucracy
1. MITI (compare to the US Department of Commerce)
2. Domination of the LDP (business and farmers)
b. Appropriate Tools: control over capital markets, control over foreign trade,
control over inward foreign direct investment, influence on new technologies,
and some control over competition
c. National consensus on goals (economic growth)
4. Government Pick Winners
a. could become competitive, could benefit from economies of scale, high income
elasticity of demand, had considerable linkages
5. Tools Used
a. Control over capital markets (foreigners could not borrow in Japan, much (10 to
20% of household assets) of the savings go to the Postal system, set an upper limit
on interest rates – banks borrow from the BOJ to fund the shortage of funds and
the BOJ restricted their loans into
favored industries)
b. Stimulate Investment Demand by tax incentives, low interest rates, its own
government spending, and by reducing “excessive competition”
c. High (40%) tariff rates and quotas – allowed Japanese companies to realize
economies of scale (also foreign exchange was controlled). Also, subsidies, low
interest loans, and tax incentives were given to promote exports
1. undervalued yen at 360 yen to $1
d. foreign companies were not allowed to produce in Japan so they would lease their
technologies to Japanese companies. Since MITI negotiated all leases, the price
paid was lower (only one buyer). Then, the technologies were widely diffused
among Japanese companies
e. acted to reduce competition by exemptions from the laws and by rationalization
mergers. But the government encouraged competition by encouraging entry,
diffusing technologies, and supporting small businesses
1. recession cartels
6. Debate over the Effectiveness of Japanese Industrial Policy (also done in Korea and
Taiwan)
7. More recently ---
a. as companies became large and powerful, they were less easily influenced by the
bureaucracy
b. Once Japan catches up, picking winners is harder
c. elected politicians came to have a greater role and the bureaucracy less
d. Budget deficits have acted as a constraint
e. Interest rates are more determined by market forces
f. Corporations have become less dependent on the banks
g. Japan is more integrated into international capital markets
h. Tariffs have been reduced and quotas and export subsidies have been eliminated
i. Greater enforcement of the Anti-Monopoly Law
j. 1970s on: a new set of sunrise industries based on knowledge intensity
11 sunset industries
k. new goals to compete with economic growth: environment, quality of life in
general, social security in an aging population, a new generation
Government spending, taxes, and the budget deficits left for the reading.