Restructure the autonomy of labor and management

Nov 18, 2018 [No.58-2018]

Dr. Hisashi YAMADA
Research Director, Chief Senior Economist
The Japan Research Institute, Limited


The direct significance of work-style reforms in Japan is improvement of labor conditions in the workplace which had been delayed. However, the deeper significance is to rebuild balance of power in industrial relations, recover the balance between cooperation and tension and restructure virtuous cycle of corporate growth and improvement of the treatment of employees. Correcting long working hours and equal pay for equal work are just a starting point of work-style reforms. It is essential that labor and management proactively create a relationship of coexistence and co-prosperity with each other from this starting point.


In Japan, cooperative industrial relations were built through the period of confusion just after World War Ⅱ. A good point was that, because each labor union was organized in each company, the labor unions thought about company development first and actively cooperated to improve productivity. The companies also stabilized employment for employees, put an emphasis on labor and management consultations and increased wages as they are suitable for productivity improvement. It was after the first oil crisis that an advantage of these good industrial relations was fully demonstrated. Many labor unions in Europe and the U.S. requested wage increases which exceeded a rise in price in order to maintain a proper standard of living. While the economy was slowing down due to the skyrocketing price of oil, high rates of wage hikes suppressed companies' profits. Because of this, companies increased their sales prices and the rise in price did not stop. Companies' profits were getting worse, unemployment rates remained high and many western countries turned to "stagflation," a state in which high inflation and recession coexist.


In contrast, labor unions in Japan refrained from conducting such requests for wage increases and companies also restrained employment adjustment. As a result, the Japanese economy climbed out of the recession quickly past the western economy and got back on to the path of sustainable economic growth while prices also became stable. These good performances were praised by OECD later. Lifelong employment, seniority-based wages and enterprise unions were called "Three Sacred Treasures." The Japanese economy had continued in a healthy condition until the 1980s.


However, entering into the 1990s, the Japanese economic slump extended because cleaning up after the bubble burst took a lot of time and growth of total population was reluctant. Also, due to emerging countries catching up, labor unions, which gave top priority to maintaining the employment of regular employees, permitted an increase in the number of non-regular employees and accepted wage reductions. Those situations continued for so long. Pressure for wage increases became weak, labor unions were opposed to employment adjustment and unprofitable business remained unchanged. As a result, the situation turned into vicious cycle where profitability in the companies declined and wages did not increase all the more.


This work-style reforms have a meaning to drive a wedge into such vicious cycle. With this opportunity, Japanese companies have to recognize there is a limit to work time, readjust unprofitable businesses and enhance profitability in order to make wage increases possible. If these have not been done, it cannot be said that work-style reforms are successful. For this goal, labor unions need to accept employment adjustments. Instead, they should do their best for getting sufficient support such as reemployment and additional retirement benefits. Whether industrial relations which balance cooperation and tensions can be restructured or not affects the success or failure of work-style reforms.


As stated above, starting with regulations introduced by the Japanese government, labor and management proactively need to take on converting business structures and increasing wages sustainably. This is based on initiatives by each labor and management, but creating a framework for job security that goes beyond industry reorganization and corporate frameworks is required. In this sense, what is needed for the government in the future is establishing places to discuss and arranging supporting measures so that good cycles of productivity improvement and wage increase are formed mainly by the labor and management.

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