Japanese Employment System Shifting from “Membership-Type” to “Job-Type” by the Impact of COVID-19

In the 1980’s when “made-in-Japan” products dominated commercial markets in the world, the managements of Japanese companies were confident that their unique management system called “Japanese Management” could drive the success. The membership-type employment was one of the features of this unique management system, which developed a mutual surveillance culture to strengthen the self-discipline of the employees. Those who adjusted to such a culture felt they were members of the organization and even were proud of their strength by saying, “Japan as No1”, which was derived from the title of the 1980’s best-selling book.

However, after the “Bubble Economy” crashed in the 1990’s, many Japanese companies suffered from the long declining economy for decades. One of the burdens for them was inflexible legacy HR systems, such as fixed labor costs and strict employment security. On the other hand, more foreign companies, especially in retail and service sectors, started to come to Japan because of deregulation in business. At that time, Japan still seemed to have a huge market as well as growth potential. Those companies are called “Gaishikei (foreign affiliated) Companies” and operated based on their home countries’ HR policy and practices, which is “job-type employment”. Compared to membership-type employment, job-type employment defines each employee’s job and expectations of his/her performance. Although it is difficult to rotate the employees due to the job description, the Gaishikei companies could hold merit increases or even reduce the pay based on the employees’ performances under the new system. They also could reduce the workforce by asking for voluntary retirement in the event that a job became redundant due to the changes in markets and technologies, which was considered a taboo in legacy Japanese companies. This system fit to the economic environment in Japan in a declining economy from the 1990’s to the 2000’s.

Since then, the job-type employment has been spreading in Japan. Not only Gaishikei companies but also some Japanese companies, especially, those extending their operation globally, have started to shift their HR systems. With such shifts, the employees in Japan have started to be aware of their careers, and, once they find they do not like the management styles, cultures, personal relationships with bosses, etc., they decide to move to other companies. The employees, especially, younger generation ones, become more independent, and individualistic. They no longer accept the mutual surveillance culture, nor membership-type employment.

COVID-19 has accelerated the shift. Many companies have asked the employees to stay at home to work. Since communication between managers and subordinates is limited through on-line contact, the supervision from managers needs to be minimized. Work itself, as well as its work style, becomes more independent. The employees feel less that they are a part of the team and are less devoted to their workplaces than before. Therefore, the companies need to start to define each employee’s job and set clear performance goals to manage employees working remotely. As the results of these changes, maintaining membership-type employment becomes difficult even in traditional Japanese companies where, as you can imagine, increasing the transaction costs in the organizations are inevitable. To prepare for a future working environment with COVID-19,　Japanese companies are now considering if they should change their legacy HR system, or explore opportunities for staying with the legacy system by using technologies, etc.　to increase their efficiencies.