The End of Japanese-Style Human Resource Management?

Abstract

In my view it is the labor market, particularly the practice of permanent employment, that is the most important persisting institutional difference between the U.S. and Japan.This difference has much to do with shaping many of the more obvious differences between both economies."Gary Saxonhousel "The single greatest challenge facing managers in the developed countries of the world is to raise the productivity of knowledge and service workers.This challenge, which will dominate the management agenda for the next several decades, will ultimately determine the competitive performance of companies." Peter Drucker 2There has been a plethora of recent articles in the popular business press in both Japan and the U.S. about the "end of the Japanese-style human resource management system," in particular, the end of the practices of lifetime employment and seniority-based wages andpromotion among large Japanese firms.3 While changes are being made at many companies, it is a far cry to proclaim the end of the current system, since this "system" itself has been far more an evolving process than a long term stable phenomenon.Moreover, there is a fairly large amount of evidence that while changes are taking place, they are generally limited to seniority-based pay and promotion practices, while the practice of lifetime employment remains intact in most large companies.In addition, even in terms of seniority-based wages (nenko), only a minority of large firms (approximately 10%) have actually substituted performance-based pay and promotion systems, and even 2 among these firms, some retain guarantees as to wage levels which are contrary to a pure performance-based system.The evidence for the above statements lies in the results of a number of recently published surveys carried out by the Japanese Ministry of Labor (hereafter JMOL), the Federation of Japan Employers or Nikkeiren (hereafter FJE), the Japan Productivity Center (hereafter JPC), and the Japan Employment Information (_-nter (hereafter JEIC) over the past two to three years.Using such surveys, it is possible to obtain a broad-based (rather than journalistically skewed toward the exceptional) picture of what large Japanese companies are doing within Japan in regards to their employment policies, in particular the practices of lifetime employment and seniority-based wages and promotion.This paper will make use of such survey results in answering the first issue to be addressed here: namely, are Japanese employment practices undergoing fundamental changes and if so how much?A second issue is the set of reasons behind these changes in employment practices.While popular press reports commonly point to two factors in particular, i.e.(a) a long recession over the past four years in the Japanese economy, and (b) an excess of older white collar employees whose productivity needs to be improved (Schlender, 1994, and Hori, 1993), this categorization of the problem leaves out a range of other reasons.These include changes in (1) Japanese companies' international competitive positions, (2) the structure of the Japanese economy, and (3) employee attitudes toward work.A third issue is the strategic implications of these changes (and non-changes) in employment practices, both for Japanese firms themselves and for Western companies competing with Japanese firms.Again, contrary to a certain recent popular view that Japanese firms are simply becoming more and more like Western firms in both their human resource policies and overall firm strategies (and as a result for example emphasizing profits over market share), this paper will show why large companies will be forced to continue to place a strong emphasis on both growth and market share as corporate

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