This year’s spring wage-bargaining season has barely started and a sense of confrontation is already in the air. The Japanese Trade Union Confederation (Rengo) has called for a 2 percent increase in the “regular pay hike” plus at least a 1 percent increase in basic pay. The Japan Federation of Employers’ Associations (Nikkeiren), on the other hand, has let it be known that a pay raise would be out of the question for many firms this year and has strongly suggested that labor should accept a pay cut if it wants the workforce kept at current levels.

Under the radically changed economic conditions that have resulted from nearly a decade of stagnation, however, it would be unconscionable if labor and management continue their shadow boxing and neglect to undertake a thorough review of Japan’s employment and pay practices. The time has come for labor and management to lay out a new employment strategy, as Japan’s heralded lifetime employment system is being put to a crucial test in this changed economic environment.

Adding to the woes of workers approaching retirement age, the government has decided to push back the age at which they are qualified to begin receiving social-security benefits, in order to save the cash-strapped pension system. Starting from April next year, retirees will not be eligible for a full pension until they reach 61, instead of 60 as at present. What is more, the qualifying age will be gradually extended to 65.

As the monthly jobless figures show, these are not ordinary times on the employment front. True, the economy has been picking up slowly in recent months. Most companies are climbing back into the black, while not a few are expected to report record earnings when they close their books in March.

Yet restructuring continues in corporate Japan. A Labor Ministry survey found that 41 major Japanese corporations have announced plans to lay off employees — a total of 140,000 over the next several years. As companies cut back on hiring, the number of students who will be without a job after they graduate in March is likely to hit record levels. If the number of these jobless new graduates is included, the unemployment rate in Japan could top 5 percent.

Complicating the age issue is a demographic trend. The Labor Ministry estimates that the number of workers over the age of 15 will peak in 2005. After that, Japan will face a gradual shrinking of its overall labor force. In fact, individual industries and companies are already experimenting with ways to deal with these looming employment issues. The introduction of merit-based annual salary contracts, for instance, is no longer uncommon, although most are still embryonic attempts to add flexibility and supplement the existing pay structure.

Individual labor unions, too, are exploring ways to deal with the gap between retirement age and the qualifying age for social-security payments. The Federation of Iron and Steel Workers’ Unions has proposed, as part of this year’s spring labor offensive, to set up a “half-and-half” work-sharing program for workers over 60. A number of electric-appliance manufacturers are already negotiating with labor on ways to extend employment past the retirement age; Fuji Electric Co. Ltd. has actually agreed to extend retirement age to 65 eventually.

The impact of job insecurity on the economy is not lost on Nikkeiren leaders. Speaking at an extraordinary session of the Nikkeiren general assembly last week, Nikkeiren President Hiroshi Okuda made a strong case for job security, saying “If the employment situation further deteriorates, consumers will lose the confidence to spend their money and the economy may stall once more.” He even described pre-retirement layoffs as “morally wrong and a breach of trust between management and labor.”

These are undoubtedly brave words, but words alone will not help alleviate the employment situation, nor ease the plight of the unemployed. The relentless onslaught of globalization in the marketplace will necessarily mean a review of the employment system in Japan, along with other business practices. The lifetime employment system, long viewed as the bedrock of the Japanese corporate system, is under siege. Management and labor are increasingly under pressure to seek new meaning for the term job security itself.

Instead of dancing around percentage points of wage hikes, corporate Japan must take a systematic approach to addressing the issues of employment, merit pay, job security and retirement age. This is a tall order, but radical changes in the economy require radical approaches on the employment front as well.

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