Addressing the Problems with Japan’s Peculiar Employment System

Economy Society

Japanese companies have cut back sharply on their recruitment of regular employees to be permanent members of their organizations, forcing many people to rely on nonregular employment. An expert on labor policy calls for the introduction of a job-based system of regular employment, distinct from the existing membership-based system, which is seen only in Japan.

The problems with employment and labor in today’s Japan—the peculiar way in which university students hunt for jobs, the poor work-life balance among regular employees, and the difficult circumstances faced by nonregular workers—can all be attributed to the unusual nature of the Japanese employment system.

A “Membership-Based” Model of Regular Employment

In countries other than Japan, people who fulfill the three conditions of direct employment, full-time hours, and an unlimited employment term are generally considered to be regular employees. But under Japan’s Part-Time Employment Act, workers are not recognized as regular employees unless their “job description and assignment are likely to be changed . . . throughout the entire period until the termination of the employment relationship.”(*1) Employment contracts rarely include detailed job descriptions, and even when a job description is included, the rules of employment generally provide that the employer can change it.

The Japanese style of regular employment is one under which there are no limits on the duties, hours, or location of work; the employer can change these at will. Inasmuch as accepting employment at such an enterprise is tantamount to becoming a member of a community, I refer to this Japanese style as “membership-based employment.” This is in contrast to the style seen in other countries, where the duties, hours, and location are ordinarily limited. I refer to this as “job-based employment.” Regular employees under the membership-based system have no right to limit their duties, to refuse overtime work, or to decline transfers to distant locations (the Supreme Court has so ruled on all three of these items).

What Japanese-style regular employees have won in exchange is limitations on dismissal for “redundancy”—letting an employee go because the job he or she was performing has ceased to exist—which is taken to be the most legitimate form of dismissal in Western countries. If the employment contract limits the worker’s duties and location of work, the employer cannot unilaterally change these conditions. But equally, in the event that the worker’s job ceases to exist, the worker cannot demand that the employer transfer him or her to another post. In order to be in a position to make such a demand, it is necessary for the worker to grant the employer the right to transfer him or her at other times. In other words, by accepting the lack of limitations under their employment contracts, Japan’s membership-based regular employees have enhanced their prospects for remaining employed; if a worker’s current job becomes superfluous, he or she can expect to be assigned different work within the same company. This is the foundation for Japan’s internationally famous “lifetime” employment system.

In line with this system, where the employment contract effectively gives the employer carte blanche, the hiring process in Japan is radically different from that seen in Western countries. Instead of recruiting and hiring workers with specific skills to perform particular work when needed, Japanese companies have generally hired young people en masse immediately upon their graduation from college (or, especially in earlier days, from high school) by taking applications from students before they graduate and attempting to select ones with the latent ability to do any sort of work that the company may assign them. This is a practice not found in any other country.

This mass hiring process makes it impossible for companies to judge would-be employees on the basis of their working abilities as indicated by formal qualifications or other objective measures—the approach ordinarily taken by companies in other countries. So they are reduced to focusing on the applicants’ “enthusiasm” and “aptitude.” College students in Japan these days start their job hunts more than a year before they graduate, but in fact they are not hunting for jobs so much as applying for membership in companies.

The Sharp Rise in Nonregular Employment

To recap, those who are successful in getting hired as regular employees under the Japanese system must work without any limit on their duties, working hours, or job location. In return they enjoy employment security: Even if their current job becomes superfluous, they can count on the employer to place them in another position within the same company. At least until 20 years ago, this sort of social trade-off between labor and management was accepted at the macro level in Japan, and there was little dissatisfaction with the arrangement. But since the 1990s companies have been moving to limit membership-based employment to a smaller group of elite employees and have curtailed their recruitment of new employees accordingly. As a result, graduating students who in earlier years could have expected to secure spots as regular employees have been forced to settle for nonregular employment, taking low-paying jobs offering little or no security.

Nonregular employment certainly existed before the 1990s, but it consisted mainly of part-time work by housewives seeking to supplement their husbands’ incomes and temporary jobs taken by students. This did not present a social problem. But it became a public policy issue when young people came to rely on nonregular jobs to make a living. As the hiring of regular employees is limited almost exclusively to newly graduated students, those who graduated after the start of the “employment ice age”, and failed to gain admission to a company at that point, find themselves stuck in nonregular employment even as they get older. This makes the situation more serious. And nonregular workers, who used to make up less than 20% of the labor force, now account for close to 40%.

In an attempt to deal with this issue, a revision of the Labor Contract Act in 2012 specified that those who have worked under fixed-term contracts that have been renewed for a period of over five years can switch to a contract without a fixed term. But this does not mean that they become Japanese-style regular employees. Though the term of their contract is not fixed, their duties, hours, and job location are still limited. In that respect their status is the same as that of the “job-based” regular workers of Western countries.

From Membership-Based to Job-Based Employee Status

What I would like to see is the widespread implementation of a new form of employment, that of the “job-based regular employee.” This would provide a modicum of steady income and guaranteed employment status to the members of the generation who have had to settle for nonregular employment up to now, even as they approach middle age. But since these employees would not be eligible for transfer, they would not be able to avoid redundancies. In order to provide support at the macro-social level, it would be essential to establish the sort of external labor market mechanism that has been extremely underdeveloped in Japan up to now, a mechanism to move workers between companies. A particularly pressing requirement in this connection is the need to develop a system for certifying professional abilities that can be used at any company.

The availability of job-based regular employee status would also be good news for those who have reluctantly accepted the existing no-limits type of regular employment, since it would be a more attractive alternative than being a nonregular worker. This option, which would allow people to have reasonably steady jobs with a healthy work-life balance, would be especially welcome for people who are unable to devote their entire life to a company, such as women raising children—who up to now have had to choose between the extremes of membership-based regular employee status and nonregular employment.

The mind-set of the membership-based employee model is very firmly entrenched, however, and recent calls for a job-based model of regular employment have run into fierce opposition from labor unions and the political parties that rely on their support. A portion of this resistance comes from emotional reluctance to change the status quo, but another portion is based on reasonable grounds.

The idea of job-based regular employee status was raised for consideration by labor policy mandarins several years ago. At the time it generated virtually no opposition. But shortly after the Liberal Democratic Party returned to power and Prime Minister Abe Shinzō formed his second administration late last year, the government established a Regulatory Reform Council and an Industrial Competitiveness Council, and after business executives on these councils—particularly the latter—made calls for giving employers greater freedom to dismiss employees, this job-based employment status came up as a possible substitute for the current form of regular employment. This accounts for some of the leeriness toward the idea within the labor movement.

Also, though the report submitted by the Regulatory Reform Council made no mention of it, the minutes of the council’s discussions reveal members repeatedly stating that poor performance should also be grounds for dismissal of job-based regular employees, even if their jobs continue to exist. The idea of allowing dismissal for poor performance is a different issue from that of establishing a job-based regular employee status, and it is only natural that opposition to the job-based employment concept should arise if it is promoted as a way of advancing this sort of hidden agenda.

For the most part, though, the discussion of this concept has not delved into these particulars. Organized labor and political parties have been declaring their opposition to the very idea of “redundancy” dismissal of workers whose jobs have ceased to exist—a line of argument based on a Japanese logic that would not be accepted in Western countries, even among labor unions.

The Membership-Based Model Allows Abuses by “Black Companies”

I am an advocate of job-based regular employee status, and though I am concerned about the recent developments described above, I expect that over the medium-to-long term this form of employment will come to be used for the majority of workers in Japan. The “good old days” when the membership-based employment system, with no limits on duties, hours, or location, was the default were a time when the single-income model prevailed—a model under which an adult male supports a wife and dependent children on his own wages, with part-time and temporary jobs held by wives and students playing only a supplementary role. Almost 30 years have passed since the Japanese Equal Employment Opportunity Act came into force, and it is unlikely that Japan will be able to cling to this old model indefinitely.

Nowadays the problem of burakku kigyō, literally “black corporations,” in Japanese, is emerging as a major social issue. These are companies that force their employees to work unreasonably long hours and otherwise place excessive burdens on them. This abuse is grounded in the membership-based model of employment. The companies in question are ones that apply the no-limits approach traditionally adopted in return for long-term job security, but without providing security. It seems reasonable to say that the biggest cause of the “black corporation” phenomenon is slavish adherence to the membership-based model at a time when the scope for hiring regular employees has sharply shrunk.

(Originally written in Japanese on June 18, 2013.)

(*1) ^ English translation from, where the full name of the law is given as “Act on Improvement, etc. of Employment Management for Part-Time Workers."—Ed.

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