Japanese long-term employment: Between social norms and economic rationale

Introduction The practice of long-term employment in Japan, often referred to as “lifetime employment, " is considered to be one of the most distinctive features of the Japanese employment practice, as well as one of the essential elements of the Japanese economic model.¹ Hence, it is not surprising that it has often been the subject of attention for scholars in human resource management, corporate governance, labor law and economics. During the period of economic expansion, long-term employment was praised as one of the key factors of Japan’s success story. After the bubble burst in the early 1990s and economic recession left many companies with a huge excess of employees, long-term employment came under harsh criticism as one of the obstacles to economic recovery. Since then many scholars have argued for a revision of employment relations in line with the Western model, but so far the fundamental patterns of long-term employment persist. There are various views on whether long-term employment is really unique to Japan (and some other Asian countries, such as South Korea), or the differences are just a matter of degree. According to the culturalist view, long-term employment is fundamentally different from the Western patterns and its character is determined by the unique culture of Japan. The opposite view disputes this cultural explanation by relying mainly on an economic rationale and focusing on economic factors. This bipolar approach is also present in some other areas of Japanese law and practice, such as the theories concerning the low litigation rate in Japan and the character of Japanese corporate governance. Several questions may be raised in relation to long-term employment: Why does it exist in Japan? What is its origin? What is really unique about the longterm employment system in Japan? How does it affect Japan’s economic model? This chapter will firstly address the basic features of long-term employment in Japan. Then, it will analyze the influences of various factors on long-term employment in light of arguments relied on by competing theories on the nature of long-term employment. This approach may be useful in seeing a wider picture of the Japanese long-term employment system which can contribute to a more complete and thorough understanding of it. Understanding the nature of long-term employment may also be important for assessing possible future trends of long-term employment. The last part will explore the new tendencies and prospects for changes in long-term employment in Japan as a consequence of economic recession in recent years. In different ways, both economic recession and globalization have affected the long-term employment system. We shall try to analyze the changes from the point of view of changes in attitudes towards long-term employment, the reactions of employers and also possible changes to the legal framework and corporate structures. Particular attention will be given to the assessment of legal reforms and their potential impact on the future of long-term employment. This issue will be analyzed by considering various factors, such as the need for a more flexible labor market, the social constraints that may present an obstacle to comprehensive changes in the existing system, as well as the attitudes of society, firms and the government. The chapter will conclude by evaluating the possible directions of the evolution of long-term employment in the future.