The Changing Face of the Japanese Workforce

Following is an interesting article about the changing dynamics of the Japanese workforce, posted from http://economist.com dated January 3, 2008

SAYONARA, SALARYMAN
Jan 3rd 2008

Once the cornerstone of the economy, the paternalistic relationship
between Japan's companies and their salaried employees is crumbling

WHEN they were young they might spend the night at the office, sleeping
under their desks. For years they would go out drinking with colleagues
and clients, returning home sozzled at 3am before rising at dawn to
head back to the office. They accepted boring jobs or postings to
provincial backwaters without question. And they did it all simply
because the company asked them to. The thought of finding another
employer never crossed their minds.

That is how the "salaryman" became the paragon of modern Japan, the
white-collar hero who fashioned the world's second-largest economy from
the ashes of war. But he is becoming a figure of the past. This has
enormous implications in a country in which the company is the dominant
institution in people's lives, affecting not only Japan's world of work
but also wider Japanese society.

The change in the labour market gathered pace in the 1990s, as Japan's
economic woes forced companies to scale back employees' benefits
dramatically. Increasingly, many firms hired new staff on short-term or
part-time contracts rather than treating them as members of the
corporate family. Japanese businesses, harried by foreign competitors,
have gained from having a more flexible workforce. Moreover, mergers
and acquisitions are starting to become more common, so firms cannot
offer the traditional long-term assurances to employees even if they
want to. Lastly, a big generational shift is taking place. Today's
young professionals refuse to make work the centre of their lives or to
accept the hardships and corporate paternalism of earlier decades.

These labour-market forces manifest themselves in several ways. They
affect gender equality, as more women enter the workforce. They touch
on immigration, as foreigners are called in to do jobs that the
Japanese reject. They are changing the role of older people, as many
pensioners rejoin the workforce. And they have distributional
consequences too. Japan is one of the most egalitarian of the world's
rich societies, yet it now has one of the largest shares of "working
poor"--people who have jobs but can barely make ends meet. Wages have
fallen by around 10% (in nominal terms) over the past decade.

The demise of the salaryman brings all these issues into stark relief.
Though the term was coined in the 1920s to reflect the new managerial
class that oversaw the country's industrialisation and modernisation,
it became an ideal only after the second world war. Becoming a
salaryman denoted success, enshrining solid middle-class status.

More importantly, it meant stability. Employment was more or less
guaranteed until retirement. Wages were low at first but increased
predictably until the pension arrived to see the salaryman through his
silver years. Training was provided. Perks abounded. The firm looked
after the employee and his family. In return, the salaryman devoted his
life to the firm. A university graduate did not choose a career; he
chose a company.

A NIGHT ON THE TOWN
Today's older salarymen are stoical about the changes. They see that
they are the last of their breed, but feel neither nostalgia for their
past nor frustration at the younger generation's rejection of their
ways. In private moments, indeed, the old guard question the sacrifices
that led them to put work ahead of family and conformity ahead of their
own interests. In a survey by a global consumer-products company, many
salarymen expressed frustration at how their lives had turned out.

One night in Shimbashi, a grey, worn district of Tokyo near a big train
station that feeds salarymen to the suburbs, three men in their mid-50s
are huddled around their sakes and cigarettes at an outdoor bar. Akira,
Sho and Hiroyuki ("Harry") joined their firm around 30 years ago. Each
wears a pin of the conglomerate's logo on his lapel. They reminisce
about their lives as salarymen and the changes that have taken place,
recounting their experiences ever more richly as the sake flows.

 When Akira got married, he recalls, he invited his BUCHO, or division
chief, to the wedding, as all salarymen did. And during the reception
the boss made a speech to the bride, as he always did. "Your new
husband is a very good worker," he began. "He is important to the
company. So please understand that he may need to work many long
hours." All the guests nodded silently. "And when he is at home, please
take care of him."

Akira says that his bride--the marriage was largely arranged by their
families--was not upset by the BUCHO's remarks: her role of housewife
was taken for granted. "But later she thought something must be wrong
with the system," he confides. Akira would return home in the small
hours stumbling drunk; dutifully she would wait up, angered. The dinner
is put away and the bath is cold, she might say. As he grew older, he
no longer stayed out so late. But he did not share her reservations
about his evening activities. "In Japan entertaining clients is a part
of the job," he explains.

A salaryman arrives in the office at 9am and ends his working day late,
often around midnight. He does not dare leave the office before his
supervisor--and managers stay late to show their loyalty. Is any work
going on? Rarely. But long hours remain the norm.

A few times a week, at around midnight, the boss may assemble the team
and go out on the town. Then the "working" day does not end until
around 2am, in a bar; the journey home takes another hour or two.
Drinking deep into the night was long considered part of the job;
companies set aside a budget for it. But the funds were slashed during
the "lost decade" and have not been replenished. Now employees bear the
cost themselves.

Late-night carousing is becoming less common these days: younger
colleagues treat the hours after work as their own, not the company's.
Nobu, an ambitious 31-year-old salaryman, is one such. He chose a job
at an American company in part so that he could work reasonable hours.
He didn't count on having a manager of the old school, who kept the
team in the office or in the bars. "My first year, I didn't get more
than three or four hours of sleep a day," he says. Changing jobs was
not an option. "I didn't want to quit--because it was so tough," he
says. "Then I would have 'lost'." When he got a new manager, Nobu was
able to relish his free time.

The constant sleep deprivation results in a peculiar characteristic of
Japanese life: sleeping in public, be it on a train or in a meeting,
and its social acceptance. Nightly drinking leads to a special
camaraderie, salarymen argue. This translates into better company
performance, they say, because it is easier to reach a consensus--the
way almost all decisions are made in Japanese companies.

Yet the rough living and working takes its toll. There is even a term,
KAROSHI, or "death by overwork", which has been legally recognised
since the 1980s (although most victims have been industrial workers
rather than salarymen). Cases of mental illness in the workplace are
soaring. The country's suicide rate is among the highest in the world.

Older salarymen can appreciate the younger generation's preference for
more humane hours. The government is even pushing the idea of
"work-life balance" (it uses the English term). "The times have
changed," says Harry. "SHOGANAI," concludes Sho, meaning "it can't be
helped."

CAPITALISM WITH A HUMAN FACE
Much is made in the West of the distinctive features of Japanese
capitalism. First, cross-shareholdings protect companies from unwanted
takeovers. Yet since 1990 the proportion of all company shares owned by
business partners has fallen from around half to around a quarter.
Second, a "lifetime commitment" between company and worker--usually
simplified to "lifetime employment", although it is much more than
that--means that employees have more stability in their careers. This
too has ebbed as the number of "regular" workers, who enjoy company
benefits, has declined and the number of temporary and part-time
employees has increased (see chart 1).

Less understood is the seniority-wage system, a third pillar of
Japanese business. Salaries are based on length of service rather than
performance. Employees are paid very little for most of their careers.
Moreover, there is little difference between the salaries of the
highest- and lowest-paid staff of the same age: generally around 25%.
(An old joke among salarymen is that Japan is the only country where
socialism worked.) From around 50 until the mandatory retirement age of
60 (now rising to 65), salaries grow quickly. At retirement a bonus of
around three times the final annual salary is paid in a lump sum. And a
steady pension kicks in--it comes partly from the state, partly from
the company.

As a means of fostering solidarity in the workplace and an egalitarian
society, this system is eminently practical. Yet from the perspective
of individual incentives, responsibility and performance, it is
inefficient and unfair; exceptional work is unrewarded, other than by a
modest bonus and a bow.

The rationale for the system is that it matches a salaryman's income to
his household's expenses. So when the fellow is in his 30s, the family
does not require much. When he reaches 50 and the kids leave for
university, his salary is commensurate with his increased bills. And
when he retires, he can count on being taken care of by the company.
Like so many things, however, the system is starting to fray. Some
companies have introduced a bifurcated structure that grafts
performance-based pay onto the traditional seniority system.

Other forms of employee care are also on the wane. University is
largely a recreational interlude between the intense "cram-schools"
needed to get on a degree course and the drudgery of office work to
come; it is not a time for gaining professional skills. So on the first
day at work, employees are often ushered into a classroom that creates
a Mitsubishi man, a Matsushita man, and so forth. (Among the courses is
"business etiquette", in which new hires learn how to exchange business
cards following strict protocol and practise their bows.) But as
baby-boomers retire and temporary workers replace the full-time
veterans, training is drying up.

For years, the three salarymen in Shimbashi placed their savings in the
company's bank, which paid interest at twice the rate of an ordinary
bank. The activity, a relic of the early 20th century, allowed the
company to raise capital without turning to a bank by becoming a bank
itself. But the practice was discontinued around 2000 when regulators
feared that if these large companies were to fail, not only the
employees' jobs and pensions, but also their savings, would be wiped
out.

In addition the company provides housing. Of the three salarymen in
Shimbashi, two live in company apartments on which the rent is
subsidised, so they pay only around one-third of the market rate.
Moreover, salarymen take their holidays at company-owned resorts, which
cost half the normal price. These perks help explain the sprawl that is
one of the curiosities of Japanese companies. A big firm may have more
than 1,000 subsidiaries, from restaurants to property, partly to secure
an in-house supply of a wide range of benefits to employees. (Such
units also make good places to park mediocre managers for a few years
before retirement.)

HOW MUCH HOLIDAY?
Though the companies may own numerous ONSEN, or hot-spring resorts,
dotted across the country, the amount of holiday is becoming a sore
point with employees. Most salarymen take only a small fraction of
their annual paid holiday, since to use it all seems to raise a
question over the employee's devotion to the firm. For example, Sho
says that he has 20 days' holiday a year. But when pressed, he admits
that he takes only five. He says he does not feel badly, since it is
only right to work a lot--but his robotic response and body language
signal his reservations.

The consequences of breaking the unwritten code can be severe. Even a
star performer who uses the full holiday may be denied pay rises and
promotions. Leaving the company is treated as betrayal. All trace of
the person is airbrushed from the workplace. Social norms keep people
at their desks: older Japanese sniff about "job-hopping". And the
seniority-wage system means that switching jobs can be expensive. Until
recently, pension contributions were company-based; portable
individual-retirement accounts did not exist. And firms were not really
equipped to absorb mid-career executives, preferring to hire them fresh
out of university and keep them until retirement. Leaving a company
meant unwinding a dense web of relationships.

 Even so, much of this is changing, as younger salarymen push back.
Preferring to delineate company time and personal time, more are taking
their holidays. New employees are switching jobs too (see chart 2).
Nobu, for instance, says that when he graduated, half his classmates
joined leading Japanese companies (the others chose smaller firms or
Western ones). But only around half are still in those traditional
salaryman jobs. In 1960, he reckons, 90% of the class would have gunned
for the top jobs. Almost all of them would have stayed with the same
firm until retirement.

The structure of work, with its perks and paternalism, has had the
effect of locking people into place. It creates a static environment
for labour rather than a fluid one. Why? It is an important question:
business efficiency is about the optimal allocation of resources, and a
sclerotic labour market hampers companies' performance and restricts
workers' choices.

Like many things in Japan, the answer goes back a long way. An official
at the Ministry of Labour traces it to the Edo period, beginning in the
17th century. Important trading houses, some of which still exist, were
founded then. They considered employees as family. But economic
historians place a more recent date on the static workforce. When Japan
modernised at the end of the 19th century, it needed to import
technology from abroad. This new technology created a need for skilled
labour in a then highly itinerant workforce. So companies got into the
habit of housing and training their employees. And the investment in
training meant that companies did everything they could to keep their
workers.

This paternal relationship was frozen in place during the second world
war, when the Japanese government leaned on companies to lock in
employees as a way to guarantee production. After the war the Americans
gave Japanese workers the right to unionise. This reinforced the
illiquidity. Unions prized job security and supported a pay structure
based on age, not merit.

Today the legacy is clear. The salarymen in Shimbashi recall enormous
sacrifices as well as bountiful benefits. Both are waning. The
salaryman system has buckled under the strains on the Japanese economy.
Yet its decline is in turn adding to those strains. As the population
ages and falls, by 2030 just two workers will have to support every
pensioner. But temporary and part-time employees are paid around 40%
less than regulars. Half of them make no pension contributions, placing
a burden on the system today and creating a huge fiscal time-bomb.

Japan is changing, but slowly. On a commuter train outside Nagoya, in
the centre of the country, five high-school girls giggle at a barrage
of questions about their lives. Chihiro, who wants to be a hairdresser
when she grows up, says her father usually returns home around
midnight. Her mother disapproves, to no effect. He works, by chance,
for the same conglomerate as the men in Shimbashi. Chihiro, asked if
she also wants him home earlier, replies "SHOGANAI", echoing the
salarymen. But when she grows up and gets married, will she let her
husband do the same? Chihiro and her friends shriek: "No way!"

Nobu, the young salaryman, likes his job but plans to start his own
business one day. The older men in his office struck compromises that
he is not prepared to endure. "After 1945, we were left with nothing,
so we had to work together, with the same goal and as one team. We were
a success, and Japan grew," he says. "But this organisation doesn't
work any more. It has stayed the same for too long. The system has
rusted."