Japanese companies intrigue many foreigners, and for good reasons. Many people know about the immense pressure students in Japan face to get into the right university so they can get a good job at a good company, and the sometimes oppressive office culture they then have to live with.
But it is definitely not all bad, as it was the Japanese companies that helped Japan rise from the ashes after the ravages that were left by WW2, and rising to become one of the world’s economic superpowers. James Abegglen, an American economist, wrote a book titled “The Japanese Factory” in 1958. In his book, he revealed the three factors that created Japan’s high economic growth and the subsequent economic miracle. Let’s look at these factors a bit closer.
Lifetime Employment System
One of the most celebrated and at the same time maligned features of Japanese company life is its lifetime employment system. This system means that once the workers join a company, they stay there until their retirement age and there is not much they can do to mess this up and be fired.
The original idea actually has its roots in the Edo period. Japan used to have an apprenticeship system mostly in merchant houses at this time. An apprentice called Detchi started to live in the business owner’s house at the age of 10 or so. He didn’t deal with the business, but he did household chores such as cleaning the shop and going shopping. He didn’t have to pay for his room or meals, but he also didn’t get any salary.
At the age of 17 or 18, he started to learn about operating the business, and that is when he started receiving a salary. Around age 30, he became the manager of the business. After working as a manager for many years, he stayed in the company for the rest of his life, and he was also allowed to be independent while being supported by the owner.
This started happening around the country. The company you joined became your family. Most of the boys who joined a company at the age of 10 or so stayed in the same company for the rest of their lives. In the 20th century, the Detchi system had gradually disappeared, but the custom to stay in the company for life has remained. After WW2 and the start of rebuilding, Japan has enjoyed high economic growth for a long time, and during that time it was very rare that a big company went bankrupt or fired employees.
This means that many workers felt that the company was their second family, and they felt like they had to be loyal to the company for that reason. They remained in the same company and worked very hard. Even today, while the Detchi system no longer exists, companies let newly graduated students all start at the same time in April, and give them lessons on how to be good businessmen, which seems a bit like a modern Detchi system.
But alas, the lifetime employment heyday didn’t last forever. The high economic growth has stopped in the 1990s after Japan’s stock market crashed late in 1989, and the real estate bubble burst. The first (and second) lost decade happened, and during this gloomy time, even big companies went bankrupt. There was also an amendment of the labor law that made it easier to hire people on a temporary basis, and dispatched workers have started to become a lot more popular because of lower long-term costs.
Another factor that was loved and hated at the same time, depending on who you talk to, the seniority system was supported and made possible by the lifetime employment system. It means that you will be rewarded by staying with the same company for a long time; as you stay longer your salary gets better every year and you will also be promoted to first become team leader, then department manager, and finally, regional manager. The tricky part is that the seniority system is purely based on years of service, and not at all on merit.
What made it possible to apply this system was that companies continued to expand during the long period of economic growth. Profits continued to soar, so it was possible for companies to increase employees’ salaries year on year. They could also keep promoting employees because the number of new employees kept increasing.
Under this system, employees had the motivation to remain in the same company for a long time, so they would get a higher salary and position. And in order to be appreciated by the company, they worked hard, as this was only fair. At this moment, this system is changing. In many companies, if you don’t have good results and don’t make your targets, you will not get a better salary and miss out on promotions.
Many companies have shifted to a merit-based system so results are now a lot more important. But still, many companies, and especially the older and more traditional companies, continue the seniority system in some way. Most of the senior employees are still expecting to receive the benefits of the old system because that is what they had been promised when they started their careers in the 70s and 80s.
In western countries, the labor union movement started out as craft or trade unions which were formed by employees of the same occupation working for many different companies. In Japan, on the other hand, the labor union was formed mostly within one company, and the members are only from that one company. The big difference is that the craft union can be a lot more aggressive because loyalty issues are not as prominent.
In the case of a one-company union, the members know the actual situation of the company very well, so they don’t insist on their benefits too much and compromise through discussions. Unions in Japan used to strike until the 1980s, which meant that at that time the public transportation system sometimes stopped, but it never lasted for a long time. And after the 1990s, strikes haven’t happened at all.
Does the System Still Work?
Right after WW2, over 60% of employees in Japan joined a union, but that number has decreased to 17% in 2018. There are mainly two reasons for this drastic change. One reason is that the percentage of dispatch workers has increased significantly, and dispatch workers don’t have the option to join a union. The second reason is that even the full-time workers, especially the younger ones, don’t want to use their scarce spare time for necessary union activities.
Even though companies in Japan have been through changes in the last few decades, the basic idea of these three systems remains in the companies’ cultures and in the workers’ minds. These factors worked very well during the economic growth period when attracting and retaining employees was important to be able to expand the business, but now, in the 21st century and the time of new technologies that have made many jobs obsolete, the old customs may be an impediment to a company’s growth.
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