Underlying Trend in the Change of Employment Relations in Japan

March 4, 2024 [No. 122 – 2023]

Ph.D., Mitsuhide SHIRAKI
Professor Emeritus, Waseda University

 

 

The growth potential of the Japanese economy has been very low for a long time since the bubble economy collapsed in 1991. As a result, the tacit relationship between employers and employees has been gradually becoming irrelevant in which employers guarantee their employees long-term employment and livelihood and, in return, the employees entrust their employers the authority to make decisions on their job assignment, promotion and treatment in the company. In fact, the following changes are taking place.

First, although the internal labor market is still an important system, it needs to be modified in several ways. The basic framework of the internal market, in which “job assignment, reassignment and wage levels are determined based on the organization’s internal rules and regulations,” has had to be regulated by various external social factors. Such constraints include an increase in the number of dual-earner households, a growing need for parenting and nursing care, changes in how society perceives job assignments that require living away from home and an avoidance phenomenon of reassignment and temporary transfer, including being dispatched overseas. In addition, international organizations are increasingly pressuring companies to disclose information on various initiatives in their internal labor markets and their results, notably for SDGs, ESG and the International Standard ISO 30414 (*). In the era of advancing open innovation and BPO (Business Process Outsourcing, outsourcing some business processes to specialized contractors altogether), companies have been gradually forced to disclose their technologies and knowhow that they’ve held as their trade secrets.

(*) The International Standard ISO 30414 is a guideline for disclosing information on human capital, published by the International Organization for Standardization (ISO) in December 2018.

Second, the days when “companies could expand their organizations and offer attractive and stable internal employment opportunities” are already becoming a thing of the past, more than 30 years ago. Companies can no longer afford to have excess staff or “provide a variety of positions to employees as their job skills increase.” Nothing comes from nothing. This trend has forced employees’ career paths to expand outside the company.

Third, in Japan, where the declining birthrate and aging population are among the most serious in the world, the labor supply is no longer sufficient to meet the labor demand quantitatively or qualitatively. The above-mentioned phenomena, such as a growing need for parenting and nursing care, changes in how society perceives job assignments that require living away from home, and the avoidance by some people of reassignment and temporary transfer, including being dispatched overseas, are examples of constraints that reflect the declining birthrate, aging population and changes in the family structure.

Fourth, in the midst of globalization, global changes known as VUCA (*) have been significantly impacting corporate operations. Specific manifestations of VUCA may include various events such as exchange rate fluctuations, geopolitical issues, such as wars and conflicts due to the struggle for hegemony among major powers, and changes in the natural environment such as earthquakes and weather, with a recent specific example being the COVID-19 pandemic. Teleworking, which has all at once become common around the world due to the pandemic, has had and will continue to have a significant impact on our work styles and human resource management. We have seen a revolutionary change in work style, from the company-centered work style to the style viewing work as a part of our lives.

(*) The acronym VUCA (Volatility, Uncertainty, Complexity and Ambiguity) describes the situation where it is becoming difficult for society and businesses to predict the future.

Companies need to design measures with the above changes in mind.