Commentary / Japan

Reform the labor practices peculiar to Japan

by Haruaki Deguchi

Few would doubt that work-style reforms are at the core of the policy challenges confronting Japan. Many of the labor practices prevalent in this country are quite extraordinary in light of global standards.

First of all, it is difficult for employers to fire employees, based on court rulings and established practices, if not the outright letter of the law. This is in stark contrast with the situation in a number of industrialized countries, where employers more freely dismiss their workers with compensation of some sort, typically monetary.

At the root of the practice in this country is the established notion that the livelihoods of workers must be protected. A closer look at the issue will reveal, however, that behind this notion is an archaic idea that business enterprises cannot possibly go bankrupt and, therefore, will be able to pay the wages of workers once they are hired — an assumption that is false under a free-market economy. Small and medium-size companies cannot afford it. If they are on the brink of bankruptcy, they have no choice but to reduce their workforce. The freedom to fire employees should be recognized in Japan.

An argument like this would face an onslaught of criticism that it represents the logic of capitalists who don’t care about workers’ interests, or is a fantasy of new-liberalist believers in the almighty market mechanism. But is that really so?

What happens if a company is saddled with surplus manpower? It will likely keep large numbers of idle employees on the payroll. Nothing is tougher on people than to have no work to do. I understand it myself since I have experienced this situation. Everyone hopes to play — even in the minor leagues — rather than be a bench-warmer. If a company can freely let employees go, the workers would be able to find another place where they can get in the game.

The issue is not just about employee morale. It is a great loss for society as a whole if large numbers of workers are just being kept idle by their employers. Since fresh university graduates rush to get jobs at big companies, those companies end up having more talented manpower than they actually need. In other words, small and medium-size businesses suffer from a large deficit of talented individuals. Workers would be able to contribute far more to society by playing the game as employees of small and medium-size companies instead of spending idle time warming the bench at major firms. When Japan Airlines filed for bankruptcy procedures, the company was forced to make massive cuts to its manpower, including pilots. As a consequence, a large number of pilots entered the job market, enabling low-cost carriers to take off in this country.

Timing is also important for liberalizing regulations on dismissals. Japan is facing a serious labor shortage. Releasing surplus manpower into the labor market would no doubt help society as well as the workers themselves. When job opportunities are scarce, liberalizing regulations on dismissals would create a big social problem. But the situation is the opposite now. There is no better time than the present to take steps to increase labor liquidity.

Regulations that make it difficult for employers to freely dismiss workers have led to the mandatory retirement system, which, to put it bluntly, is nothing more than a substitute for dismissals. This system is a largely a Japanese labor practice that isn’t found in many Western economies. In an age when people talk about 100-year life spans, it is a fairly inhumane system that forces people to retire when they hit a mandatory retirement age — 60 on average. What would you think if you were told that you didn’t need to come to work tomorrow because you turned 60 even though you’re willing, healthy and capable enough to keep working?

If the nation still needs to maintain a mandatory retirement system, the age should be pushed to 75 — which is in line with the expert opinion of medical professionals. Legislation may be introduced that would invalidate rules that set the retirement age any younger than 75. It was not long ago — January 2017 — that the Japan Gerontological Society and the Japan Geriatrics Society jointly proposed that the definition of elderly people should be changed from the current “65 or older” to “75 or older.”

Another labor practice common in Japan, which is also far removed from global standards, is that “generalist” employees — who are always ready to be transferred to other locations at the company’s orders — are positioned as the top-tier career path in a company organization. This practice totally disregards employees’ work-life balance.

No matter what job assignments are given to employees, they spend their lives as members of the community in which they live. A worker who is transferred to another region of the country might be a much-loved coach of the local children’s soccer team. A sudden transfer order would sever this tie to the local community. The transfer of an employees living with a partner results in radical changes to the partner’s work and life.

In short, the practice requiring employees to always be ready for a transfer disregards their ties to the local community. Furthermore, it is an anachronistic idea based on an assumption that the employee’s partner must be a housewife (or house husband) without a job or career of their own, and therefore will quietly accompany them on their new assignment, which is extremely arrogant and in total disregard of their personal lives.

I believe it is time to establish the basic principle that the transfer of company employees be based on their wishes. Otherwise people will have less incentive and less ability to support and become a part of the regions and communities in which they live.

When I broached this idea to an executive in charge of personnel for a major company, the executive replied, “What if none of our employees want to be transferred to remote, depopulated areas?” I was left at a loss for words by the lack of imagination in the executive’s way of thinking. If that were the case, it would suffice to hire mid-career workers in those remote, depopulated areas. People there would be delighted at the new job opportunities.

The four foundational elements required to implement work-style and labor-market reforms in Japan are the liberalization of labor regulations concerning dismissals, abolition of the mandatory retirement age system, changing the definition of “elderly,”, and a review of the irrational system that allows companies to transfer career-track employees at any time to anywhere.

Haruaki Deguchi is the president of Ritsumeikan Asia Pacific University in Beppu, Oita Prefecture. A popular lecturer and author of more than 30 books, he founded Lifenet Insurance in 2008 after a career spanning nearly 35 years at Nippon Life Insurance Co.

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