Japan's society is fragmenting

Friday, 25 September 2009 13:21
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In Japanese society, it is the group and group harmony that count, much more than the individual.  What the Japanese call shudan ishiki, or group consciousness, is the foundation of society.  Without this, it may not have been so easy to reorganize society and reconstruct the econony after World War 2.

One aspect of groupism in Japan is the lifetime employment system.  Employees are expected to work hard and demonstrate loyalty to the firm.  In return, they enjoy job security and benefits like housing subsidies, insurance, use of recreational facilities, bonuses and pensions.  Wages start low, but promotions follow based mainly on seniority.  Companies also provide substantial training of workers.  Traditionally, worker training has been a company responsibility in Japan -- public training programs are relatively limited compared with other OECD countries.

The share of the Japanese population enjoying this lifetime employment system is now dwindling.  Over the past two decades, "non-regular" workers have more than doubled from about 16% to 34% of the workforce.

Who are these non-regular workers?  There are three broad groups: young people on temporary contracts, married women working part-time and older people who are re-hired by their former companies on fixed term contracts.  One quarter of non-regular workers are under the age of 30 and almost a third over the age of 50.  Some two-thirds of non-regular workers are women.  This means that more than half of female employees are non-regular.

On average non-regular workers tend to be less educated.  They are concentrated in SMEs, and also in the service sector, rather than the manufacturing sector.  They change jobs quite frequently.  Less than half are covered by employees' pension and health insurance, whereas virtually all regular workers are covered.

Why are companies resorting to non-regular employment?  Cost-cutting is the most cited reason.  Non-regular workers have lower salaries and do not enjoy the same benefits including training.  Non-regular workers also represent a more flexible form of employment, allowing companies to hire and fire more easily according to the state of the economy.  They allow companies to compensate for the high level of employment protection provided to regular workers -- countries with strict protection for regular workers tend to to have a higher incidence of non-regular workers.  Changes in government regulations have also made it easier to hire non-regular contract workers.

Non-regular employment will surely enable Japanese companies to become more flexible and dynamic like their American their American counterparts?  Isn't non-regular employment a sensible response to rapid technological change and the more competitive global economy?

Maybe, but it is also an unbalanced development.  Since one part of the Japanese workforce is arguably overprotected through lifetime employment, companies are responding by hiring non-regular employees.  Also, non-regular employees bear the full brunt of economic ups and downs.  A more balanced approach would be to reduce employment protection for regular workers so that firms have a greater incentive to hire regular workers.

Non-regular workers should also be made eligible for social insurance.  You only have to look to the US to see the costs to society of having a large part of society without social benefits.  Non-regular workers should also be made eligible for work place training.  This short term cost cutting probably does not benefit individual companies, and certainly does not the wider Japanese economy.  Japan desperately need to improve its growth potential.  A major problem of non-regular employment is that it has not been a stepping stone to a regular job -- once you are in the non-regular category, you seem to be stuck there.

Perhaps most important of all, Japan needs to maintain its social cohesion.  Its close-knit society has underpinned miraculous economic development over the past 60 years.  It also enables so many people to live together peacefully and securely in such a small space.  The rise in non-regular employment is without doubt leading to a fracturing of this social cohesion.


"Reforming the labour market in Japan to cope with increasing dualism and population ageing" by Randall S. Jones.  OECD Economics Department Working Paper -- www.oecd.org/eco/working-papers