Are Japanese companies characterized by the lifetime employment？

It has been argued that the employment of Japanese companies is characterized as the lifetime employment. The lifetime employment is defined as “continuing to work with the company which one joined immediately after graduating from school until retirement.” Alternatively, it can be described as “the way of working to complete one’s vocational career in a single company.” The notion of the lifetime employment goes back to the time when James Abegglen, whom I introduced in the previous issue, characterized the employment management of Japanese companies as lifetime commitment.

According to the “Employment Status Survey” conducted in 2012, the group of people who meet this definition account for 50.1% and 24.3% for male and female respectively and 37.3% in total among the 45-54 age group. The percentage for the age of 59, which is immediately before the retirement age, has not been publicized. Is it possible to say that lifetime employment is a characteristic of Japanese human resource management, when about one third of the employed in Japan would fulfil the definition of the lifetime employment? Unfortunately, the situation in the last half of the 20th century is unknown, since the “Employment Status Survey” started to cover this point only from the 2007 survey.

Should the lifetime employment exist as a system, then even when the corporate performance worsens due to a recession, it should not result in personnel reduction. However, Japanese companies have actually resorted to layoffs during the period when they have faced economic downturns and the sluggish corporate performance. Looking back on the history since the World War II, the similar scenes have been repeated over and over again in which a lot of employees were laid off. We have experienced some large scale job cuts at least once in a decade, including the massive dismissals during the recession after the Korean War that began in 1950; the large scale firing following a series of closures of coal mines during 1960’s; the job cuts in the recession in which we got caught after the first oil shock in 1973; the solicitation of voluntary retirement under the recession associated with a stronger yen after the Plaza Accord in 1985; and the large scale layoffs due to the collapse of the bubble economy in the beginning of the 1990s and the recession thereafter.

Then, why has it been believed that the lifetime employment does exist in Japanese companies? The leading reason is that Japan maintained a strong economy as a whole from the middle of 1950’s through the beginning of 1970’s. In 18 years from 1955 to 1973, the real annual growth rate of the Japanese economy was exceeding 10% on average. Except for the businesses categorized as the declining industries such as coal mining, the majority of companies were experiencing a labor shortage, thus seeing no need to reduce their employees. The long-lasting strong economy had resulted in the stabilization of employment and employees came to think, “we can stay with this company until retirement.” It is because of such circumstances that the term “lifetime employment” came to be taken for granted in the society.

Japanese companies have to reduce their employees during the time when their performance turned in bad shape. Therefore, it is hard to argue that the employment of Japanese companies is characterized as the lifetime employment. Then, what is the distinction of Japanese companies? In the author’s opinion, it should be the long-term employment. Employers hire people with the hope that the hired would stay with the company for 10 to 20 years or longer. On the other hand, employees are hired on the premise of long term relationship. Companies and workers agree on the point that the long-term employment is desirable. This sort of agreement widely existed in Japanese companies before, and it remains steadfast even today.