Writings of Kazuo Nimura

Efficiency and Labor Relations in Japanese Manufacturing Industries

1. Introduction

In this symposium it is hoped that by drawing on the experiences of various countries we shall be able to suggest some alternative ideas for making equity and efficiency compatible. If it were only the efficiency of manufacturing industry at the shop floor level that was under consideration, then the Japanese experience would certainly be worth examining.[1] However, to the question of whether the high level of efficiency in Japanese industry actually coexists with equity, it is far from easy to give an answer, because, whereas it is possible to a certain extent to assess efficiency objectively, attempts to assess equity invariably differ according to the standpoints and values of the individuals who are making the assessment. Judgments naturally vary according to historical time and place. If Japanese managers were to be asked whether efficiency and equity coexist in Japanese labor relations, they would probably answer in the affirmative, but if a similar question were put to workers in the American automobile industry who had been laid off owing to competition with Japanese manufacturers, one could hardly expect an equally positive response.

In this paper therefore I would mainly like to examine the special characteristics of Japanese industrial relations which underpin Japan's relatively high levels of productivity. I propose to leave any actual judgment of equity in Japanese industrial relations to symposium participants. I shall discuss some of the equity-related problems facing Japanese labor relations, but shall restrict myself to making a few brief comments upon them. For the experience of one's own country to be of any service to other countries, it is not enough simply to describe the present situation at home. Industrial relations in any one country are, after all, the result of innumerable historical factors peculiar to that country and are inseparably bound up with complex values and behavior patterns. I should like to examine the Japanese experience by adding some considerations of that historical background as I go along.

2. Decisive factors in Japanese high economic growth

There has in recent years been much discussion of so-called 'Japanese-style management'. This has been prompted by the fact that whereas the economies of many industrialized nations have performed sluggishly, the Japanese economy has continued to grow at a steady rate, despite the oil crisis of 1973 and the negative conditions produced by the rapidly rising yen in the 1980s. Japanese companies which have located overseas have also shown relatively good results in comparison with their business rivals in those countries. It is hardly surprising then that attention should be focused on the main characteristics of Japanese-style management, since industrial relations in Japan are clearly different from those in Europe and America.

However, the development of the Japanese economy and the high productivity of manufacturing industry which sustains it cannot be explained solely in terms of the characteristics of Japanese industrial relations. One must also consider a whole complex of historical, political, economic, social, and cultural factors.[2]  For example, of great significance for the development of the Japanese economy was the drastic change of the pre-war political, social and economic system following defeat in 1945. Land reforms effected under the Occupation enabled small tenant farmers, who had long been burdened by high land rents, to realize their dream of owning their own land and to increase production on their own behalf, which they were able to do with the diffusion of agricultural machinery and chemicals. While this development had the effect of increasing the purchasing power of farming families and thus of expanding the scale of the domestic market, it also led to considerable labor surpluses in the agricultural sector, on which the rapidly growing manufacturing sector was able to draw in order to supply the reserves of labor necessary for its own expansion.

A further major transformation was brought about during the Occupation by the dramatic shift in the managerial profile of Japanese companies from private entrepreneurial control to managerial control. The removal from company boardrooms of the old managerial echelons, beginning with zaibatsu (large industrial and financial complexes) family members, who were forced out of their positions of authority because of their wartime activities enabled a new generation of younger professional managers, unfettered by custom, to take the helm and develop a more a more dynamic business culture. The dissolution of the zaibatsu meant the breakup of the giant monopolistic corporations of the past, thus enabling the kind of inter-firm competition that was vital for economic growth. Furthermore, the recognition of basic workers' rights improved working conditions through the activities of the newly-liberated labor unions, thus creating the conditions for continuous growth of the domestic consumer market. Another factor which should not be overlooked, for it has had no small influence on Japanese economic growth, is the new post-war Constitution with its renunciation of war, which has received such consistent popular support and which has been responsible for Japan's relatively light burden of defense expenditures over the years.

However, Japanese management has not become the subject of international attention since the mid-1970s simply due to substantially increased rates of productivity, but because of the way it was able to sustain high productivity through the oil crisis of 1973. A key factor in the increased productivity levels of this period has been the large-scale capital investments made by Japanese firms and their energetic pursuit of technological innovation. A well-known scholar of Japanese industrial relations, James Abegglen, has explained these constantly high levels of capital investment by drawing attention to the Japanese corporation's main preoccupation with increasing market share. The substance of Abegglen's argument is as follows:[3]

    During the high growth period of the late 1950s and 1960s there was fierce competition between companies seeking to expand their share of the domestic market. As the competition got hotter and the size of the market rapidly expanded, market share became decisive in assessing a company's strength. Prices were the key to success in the battle to achieve an ever greater share, and to cut prices companies had to be prepared to pour in new investment even if it meant accepting lower profits in the short-term. For companies it was vital to establish a "winner's competitive cycle", increased investment lower costs increased market share. Companies which succeeded in establishing and maintaining such a cycle could secure substantial long-term profits and dominate their industry. Japanese companies have been following the same strategy in overseas markets.

Abegglen and Stalk point out that what makes this long-term strategy possible is the fact that shareholders have little influence with management; those who hold real power are the men who have worked their way up through the company over the years from the most junior positions and who are consequently totally committed to the firm. By contrast, American managers are appointed by boards of directors who are themselves mostly appointed from outside the company, and such managers tend to adopt a short-term policy that emphasizes increased dividends for shareholders.  
Abegglen and Stalk emphasize that the strength of Japanese companies in the 1980s was due to their having abandoned simple mass-production methods in favor of variable small batch production methods, which enabled them to respond flexibly and rapidly to changes in market demand. The first of such pioneering methods was the 'just-in-time' system, also known as the kanban system,[4] developed by the Toyota Motor Company. The key elements of this system are small batch sizes, reduced materials handling, level scheduling, low inventory levels, and production control by kanban cards.[5] This involved the rearrangement of the factory layout so that each production section was close to the others, thus saving component transit time; it also increased the number of machines the individual worker had to handle. Each part of the production process had to be carried out in such a way that the final stage could be exactly on schedule. The kanban cards were used to regulate the pace between the various stages of production. It was this revolutionary production method which dramatically improved the productivity of Japanese companies.  
    The arguments of Abegglen and Stalk have been persuasive in explaining why and how Japanese productivity levels have been so high in recent years. They have, however, paid little attention to what makes such managerial strategies and production methods possible, namely, Japanese labor relations themselves. For example, Japanese companies have constantly been able to change the procedure of work through the introduction of new technology and new production methods such as 'just in time' because Japanese workers have acquiesced in the introduction of such innovations and because labor unions have not opposed them. Abegglen and Stalk hardly touch on this point. It will be one of the main themes of this paper.   Before tackling it, however, it will be necessary to consider some of the special features of Japanese labor relations.

3. Characteristics of Japanese labor relations

The three key features of Japanese labor relations, namely, the 'lifetime employment' system, the seniority pay and promotion system, and enterprise unionism have become well-known abroad through OECD reports;[6] they are always mentioned in papers discussing Japanese labor relations and have become, more or less, common knowledge. Nevertheless, I shall just briefly outline what these terms mean.

1) The 'lifetime employment' system
Under this system a worker, once employed as a permanent, or regular employee with a major corporation or medium-scale company, is, as a rule, guaranteed employment until about the age of 60. This does not, of course, mean that all Japanese workers continue to be employed until retirement. An employee is naturally free to quit at will, and at present, quite a few are leaving their companies in mid-career.   However, managements are under considerable social pressure -- in fact they almost conceive it as a duty -- to avoid as far as possible making regular employees redundant. Even if the company's fortunes were to take a turn for the worse, regular employees would not immediately be laid off. In cases of overmanning, the management would first cut back on orders to subcontractors and resort to in-house production or would reduce staff by ceasing to renew employment contracts with staff on short-term contracts such as part-timers and other temporary workers. At the same time, all staff bonuses would be cut, especially those of the management, and overtime hours would be reduced. The annual induction of regular employees might be temporarily suspended, or production workers transferred to the sales department or to affiliated companies. If the situation still failed to improve, staff would be temporarily laid off, and only thereafter would the dismissal of regular employees be contemplated. Even then, retirement payments would be increased and volunteers for early retirement requested. If enough volunteers failed to come forward, older workers and those with ailments would be encouraged to go. Compulsory redundancies would be the very last resort.  

The lifetime employment system is a product of the post-war period. At the turn of the century it applied only to a few employees such as those at management level in large companies. After World War I it was extended to all white-collar staff and from the late 1930s began to include key skilled blue-collar workers, but by no means did it involve the entire workforce. This extension of the system to include certain skilled workers came about because managements considered that lifetime employment for such workers was desirable from the company's standpoint in order to secure the necessary skilled labor and not because they wished to make a magnanimous gesture in recognition of workers' rights. By contrast, the post-war lifetime employment system has included a strong element of workers' rights. As a result of the fierce industrial disputes of the 1950s over opposition to forced redundancies and the high economic growth of the period which followed, lifetime employment came to be established almost as a 'right'. Prewar and post-war lifetime employment systems both involve employment from recruitment to retirement, but the fundamental characters of the two systems are divergent.

2) The seniority pay and promotion system
This means that as regular employees' length of service increases, their salaries and progress up the company career ladder also increase. Under this system, there is an annual wage hike for all employees at a fixed time of year (normally April), although strictly speaking, this is an increase in only part of the wage, namely, the basic pay. This wage hike takes place irrespective of whether or not a worker is engaged in the same job or is at the same skill level as in the previous year; it is a regular wage increase. At the same time of year, however, labor unions all engage in negotiations with management to raise wages throughout industry, the so-called 'base-up' campaign or shuntō (lit. spring offensive). Japanese workers have a strong inclination to think of wages as something that goes up every year because Japanese labor unions' main campaigning activity has become fixed at the same time as the regular wage hike under the seniority pay system. 

Promotion up the company career ladder is not only a matter of length of service; it is assessed on the basis of each worker's job performance, adaptability, and especially on loyalty and contribution to the company. It is termed seniority promotion system because a certain minimum level of service is necessary before an employee can expect to be promoted to higher levels, and no matter how capable an employee may be, that length of service is almost never reduced. To give an example from a leading automobile manufacturer, to gain promotion to foreman for a high school graduate blue-collar worker requires a period of service of 9 to 11 years. There is also a qualification system in operation which has no direct connection with one's function at work and which resembles military ranks. One enters the company as a worker third class and then rises up through the ranks of worker second class; worker first class; trainee leader; leader third class; leader second class; leader first class; manager third class. After a certain number of years, anyone can rise to become a team leader, but only a few make it above leader level which requires the qualifications necessary to become foremen such as hanchō (junior foreman), kumichō (senior foreman), or kochō (supervisor).[7]

3) Enterprise unions
An enterprise union is one whose members consist solely of regular employees of the company with which the union is linked; unless one is a regular worker one cannot join the union. It therefore includes both blue- and white-collar workers in its membership. In the West such a union would be regarded as a company union controlled by management and not as an independent labor union. Certainly, there are among Japanese enterprise unions those that are hardly distinguishable from company unions, but on the whole, enterprise unions do not simply comply with management's wishes; many of them are autonomous organizations.
Enterprise unions are linked with others in their industrial sector in labor confederations and in the annual shuntō they campaign with other enterprise unions in the same industry.
However, the confederations to which they belong have little authority over them; in matters of both finance and personnel the enterprise unions hold real power.

4) Company welfarism
Some observers argue that in addition to these three key factors, company welfare constitutes a fourth element underpinning Japanese-style management.[8] In the provision by companies of welfare systems for their employees, Japan is by no means unique. Such systems were implemented early on by major American and German corporations. Japanese companies learned from these examples and set up their own in-house welfare systems which incorporated mutual aid unions and health insurance unions as well as provisions for company housing. Such facilities were provided in the pre-war period, however, out of a paternalistic impulse. This has disappeared in the post-war period as unions have demanded such facilities as of right. Various other facilities such as canteens, gymnasia, and swimming pools as well as holiday resorts have been provided by companies under pressure from their unions, which also manage the facilities under agreement with the companies. Bonuses and retirement pay have also come to be regarded as an accepted part of a worker's wages.

With shuntō having established itself as the main process of wage negotiation, there has been a leveling-out of wage levels as unions have put forward unified demands for industry-wide wage hikes, and managements have coordinated their responses on a similar industry-wide basis. Consequently, when a union's company has a better year than other companies in the same industry, rather than pushing for wage increases, that company's union will seek to secure for its members better fringe benefits than exist in other companies -- higher family allowance, accommodation allowance, travel expenses, or better retirement pay and pension arrangements.

In recent years demographic change and consequent labor shortages have meant that companies have had to improve their welfare facilities still further in an effort to secure a young and fresh labor force. Company housing provision has also taken on an added significance, reflecting the dramatic increases in the price of land throughout Japan. Whereas company-provided rented apartments used to be the centerpiece of company housing policy, employees are now increasingly being helped to buy their own homes. Companies provide low-interest finance to enable their employees to buy land and build on it. This has the effect not only of binding employees closer to the company but also of stimulating their competitive spirit and desire for promotion and higher pay which can offset the burden of loan repayments.[9]

Furthermore, projections of the effect on company finances of retirement allowance paid to an aging workforce have led to a noticeable move away from lump sum retirement pay and toward graduated pension schemes. Also, in response to the attempts by left-wing groups to extend their influence by organizing various cultural and leisure activities, companies have made strong attempts to compete for the leisure time of their employees, considering such efforts to be part of their labor management strategy. Companies have organized sports and cultural events or else they have promoted and financed recreational activities at the company level. Even employers' organizations have participated in such activities, going beyond the single company level by sponsoring events such as sports competitions and national workplace chorus festivals. 

Japanese companies have been criticized for seeking to manage their employees' leisure time in this way as well as their working hours. Labor managers' experience in organizing such activities has been channeled into the Quality Control (QC) circle and Zero Defect (ZD) movement. Although all these various company welfare activities in themselves are not peculiar to Japan, together with the lifetime employment system and the enterprise union, they help to create a sense of the company as a community and serve to increase the employee's feeling of belonging to the company. Nevertheless, all the characteristics which I have outlined only apply to the regular employees of post-war large or medium-scale companies. They do not apply to the employees of small firms and businesses nor to temporary and part-time employees with the larger companies; they are therefore clearly not to be considered as characteristics of Japanese labor relations as a whole. 

The term 'lifetime employment' is itself a misnomer, for it does not of course refer to guaranteed employment until death, but only to long-term employment until retirement; a more accurate term might be 'career-long employment'. And even this system has been changing in recent years with the increased practice of transfer of employees to affiliated companies. It has not, however, changed as much as the seniority pay and promotion system, the revision of which I shall touch on later. 

As for the enterprise unions, only 1 in 4 employees is now a member; the great majority of workers today do not belong to unions.[10] Having said that, it remains true that the pattern of labor relations in larger firms has had an indirect effect on labor relations in small-scale firms and businesses, and that it is still useful to identify the three features of 'lifetime employment', seniority pay and promotion, and enterprise unionism in order to gain an overall understanding of Japanese labor relations.[11]

4. Japanese labor relations and productivity

What then is the relationship between Japanese labor relations and the high productivity of Japanese manufacturing industry? Abegglen and Stalk have pointed to constant large-scale capital investment as one of the main factors accounting for Japanese companies' rapid increases in productivity in recent years, as well as their adoption of flexible manufacturing systems like 'just in time'. This has been possible, because the individual worker has not been opposed to new work routines following from the introduction of new technology and has cooperated positively with activities such as QC circles, and because, on the whole, unions have not been absolutely opposed to them either. 

This phenomenon is rather unusual in the history of the labor movement worldwide. In the West, workers considered the skills they had acquired to be their assets. New technology invalidates such assets, so it has often been forcefully opposed. Western labor unions, organized on occupational or industry-wide lines, have sought to regulate working conditions beyond the bounds of the single company. Consequently, when new technology is introduced into a particular firm, it becomes a problem not only for the workers at that firm but also for workers throughout industry who have anything to do with the occupation in question, and is opposed by the union on that general basis. It is well-known how the introduction of new machinery and new production methods has been constantly obstructed by the restrictive practices of unions in Britain, with its strong tradition of craft unionism.
Why then have Japanese workers not only not been opposed to new technology, but have even cooperated with its introduction? 

One reason is that the career-long employment system means that workers have not had to fear that the new technology would lead to them losing their jobs. It might well mean the invalidation of the skills they had previously acquired, but then regular employees at Japanese companies are not hired for the particular skills they already possess; rather, they are hired simply as individuals who precisely do not yet possess any particular skills.[12]
Japanese companies also frequently rotate workers round different sections and divisions of the firm, and as such placements often bring promotion, workers harbor no strong feelings of antipathy toward them. This is particularly the case with white-collar workers. Blue-collar workers are not moved so often, but they are not left to do the same job interminably; in accordance with their length of service with the firm; they are progressively retrained to perform jobs requiring higher levels of skill. It is also normal for them to be expected to deal with a number of jobs in rotation at the same workplace, so the habit of thinking of one particular job or skill as one's property hardly arises. Even if they are moved to a job which requires a lower skill level, the seniority pay and promotion system means that they need not fear a drop in their wages. 

The fact that Japanese labor unions are enterprise unions also contributes to the lack of workers' opposition to new technology, because they know that if the union were to oppose it, their company might well lose out in competition with other firms, which might then lead to lower wages, or worse, the very existence of the company might be threatened, which could mean redundancy for the entire workforce. For the individual worker, of course, a change of work routine can often be disadvantageous. A company policy of 'scrap and build' in particular, which involves substantial alterations at the workplace can necessitate changes of residence, which have a major impact on family life. The unions are concerned to reduce such disadvantages as much as possible and put much effort into doing so. Nevertheless, even in such situations, there are few cases of absolute union opposition. 

It is thus clear that the fact that Japanese workers are company-oriented rather than craft-oriented, and that unions are organized on an enterprise basis contributes significantly to increasing productivity. It should not be forgotten meanwhile that the Japanese system of labor relations has only very recently come to be regarded as 'efficient' ; it was for a long time seen as outmoded. This change has probably occurred because of the rapid pace of technological progress led by the revolutionary developments in microelectronics since the early 1980s. The 'just in time' system calls for constant restructuring of work schedules and procedures and reassignment of workers. This means a great diversity of work operations for the individual employee. It is essential for this kind of production method, which is geared to variable small batch production rather than mass production, to have a workforce which is not locked into a particular work routine and which can swiftly and easily adapt itself to new technological tasks.

5. The historical background to Japanese labor relations

I would now like to turn to the question of why Japanese workers are company-oriented rather than craft-oriented and why Japanese unions have become organized on a company basis rather than on an occupational or industry-wide basis. If this is made clear, it will also then be evident why Japanese workers are not locked into particular tasks and why they are able to adapt themselves readily to new technology.[13] 

I shall try to tackle this question by approaching it from the opposite direction, namely, why have Western workers forged links only with workers of the same occupation as themselves - links which go beyond their own company? After all, as in Japan, it would seem only natural to unite with those whom one meets and with whom one works every day at the workplace. If workers are dissatisfied with their wages, they have to negotiate with their employer, and again, it would seem entirely natural for those who work for the same employer to make joint demands and to form a union of workers of the same company. On the contrary, in the West, workers of different occupations join different unions even though they are working together at the same workplace. They form unions with other workers of the same occupation whom they have never previously met. Why do they think in this way, and why have Western employers accepted such behavior? Researchers in the West have tended to regard this form of organization as natural, and there have been few studies on why it has come about, but this is precisely what I feel to be so necessary.

The answer, I believe, has to do with the tradition of guilds, especially craft guilds. One joins together in an organization with those of the same occupation; to become a member one has to serve an apprenticeship for a fixed period; the number of new apprenticeships is regulated. Members' working hours and output are also regulated, and excess production is avoided in order to maintain working conditions and prevent unemployment. All these features craft guilds and craft unions have in common. Both seek to control the labor supply of a certain occupation by using the organized strength of that occupation's members.
By contrast, in Japanese society prior to industrialization, there were no autonomous, self-governing artisans' organizations like the British guilds.

Moreover, in Japan during the 250 years of the Edo Period before industrialization there were also none of the kind of western-style free cities that had made such self-governing guilds possible. Almost all towns were castle towns, under the direct control of samurai. There were, of course, artisans' groups, and apprentice systems also developed. But these Edo Period artisans' groups were formed to collect special taxes levied on artisans of particular occupations; they were thus controlled from above. There were therefore no restrictions on entry as with the guilds. This may be why the carpenters of Osaka sought to increase their membership in order to spread the burden of taxation. There are known cases of Japanese artisans' groups in that period seeking wage increases, but they do not seem to have had much effect. There is no word in Japanese corresponding to the English word 'stint' which signifies the amount of work which the individual worker chooses to do.

Of course, one cannot explain the fact of Japanese enterprise unionism simply by pointing to the lack of a craft guild tradition. Another important factor is that managements have consciously sought to make unions into company-based organizations. When Japanese employers were forced to recognize labor unions by the policy of the Occupation authorities after 1945, they were extremely wary of unions becoming horizontally-based organizations which would transcend individual companies. They tried in various ways to ensure that unions were organized along company lines by, for example, refusing to enter into negotiations with union activists from outside the company or by encouraging workers loyal to the company to organize themselves. 

Behind this strategy lay the employers' experience of the pre-war years when autonomous unions were formed in many big companies. The employers had often been successful in opposing such unions by forming docile company unions. The main employers' organization which led the opposition to the labor union movement in the post-war period was the Japan Federation of Employers' Associations (Nikkeiren), whose secretary-general from 1948 to 1969 was Maeda Hajime. He had been a labor manager with the Hokkaido Coal and Steamship Company, a Mitsui affiliate, before the war and had had some success in organizing company unions. Maeda was the man who worked to spread the notion of the company union (kaisha-kumiai) throughout Japanese industry, constantly emphasizing that the enterprise union should not be allowed to have anything to do with organizations outside the company. As the leader of Nikkeiren, he always stressed that the enterprise union was the keystone of Japanese labor relations.

6. The blue- and white-collar mixed union

The pre-war company union and the post-war enterprise union resemble each other in that they are both organized on a company basis, but they also differ in a number of ways. Most noticeably, whereas in pre-war years unions were not formally recognized in law, they became fully recognized after 1945, and employers were prohibited from directly controlling them or interfering with their activities. Secondly, and most importantly, in the post-war period white-collar workers belong to the same unions as blue-collar workers; before the war only blue-collar workers were unionized. Such joint 'blue- and white-collar' unions are extremely rare in the history of the labor union movement throughout the world; why have they developed in post-war Japan? 

The main reason was the influence of the 'democratization' policies of the Occupation authorities after 1945. The fundamental policy of the authorities was the demilitarization and the democratization of Japan. The democratization policy was strongly supported by Japanese workers, who saw it not simply as a matter of voting rights, but rather, looked to it for the removal of the various forms of social discrimination which had existed before the war, and especially for the removal of status-related discrimination at work.

Behind this attitude lay the bitter experience of long years of social discrimination against blue-collar workers. Before the war and until the early 1950s there were few industrial disputes in Japan that were simply a matter of demands for higher wages. Many of the large and turbulent disputes were sparked by the anger felt by blue-collar workers at the discriminatory way in which they were treated compared with white-collar staff and foremen. Managers and engineers would address and treat blue-collar workers in a condescending manner, or supervisors would demand to be paid bribes or engage in other unjust practices. The fact that the labor union movement enjoyed a certain amount of success in pre-war years was because unions fought against social discrimination and demanded better treatment from society for blue-collar workers. Japanese workers opposed such discrimination not out of any concept of natural law, such as the idea that all human beings are born equal. They were not averse to social rank and company hierarchy in principle. After all, social relations in Japan have always been a matter of measuring one's own social status in relation to others. The Japanese do not consider human relations to be a matter of equality, but are more concerned with ranking. 

Why then did workers feel so indignant about discrimination at work? It would seem at first sight to be contradictory to judge human relations in terms of rank and to resent discrimination at the same time. The answer, I believe, lies in the strong meritocratic tendency in Japanese society, according to which it is felt that if an individual has ability, he ought to be able to rise to the top. This value lays emphasis on equality of opportunity rather than on equality of result.[14] There is no ready answer to the question of why Japanese have this meritocratic tendency, although among the various factors that could be considered, I believe, is the significant role played by the abolition of feudal ranks after the Meiji Restoration of 1868.

The declaration of the equality of the four feudal social classes at the time of the Restoration was not simply rhetoric; it actually did lead to the abolition of the classes of samurai, peasant, artisan, and merchant. Under the social order imposed by the Tokugawas during the Edo Period, one's birth determined one's status throughout life as well as one's occupation, and so for the lower class samurai, peasants, artisans, and merchants, the abolition of the four classes was a positive step forward. People were now free to choose their own occupation. However, post-Restoration society was unable to realize this new equality fully; the habit of seeing human relations in hierarchical terms was too deeply ingrained. Those forced by economic privation into the new occupation of factory worker were regarded with contempt by the rest of society, and industrial workers came to be considered the lowest social class. As is clear from the fact that factory workers disliked being called shokkō (workman or operative) and frequently described themselves as shokunin (artisan), they considered their status to be even lower than under the old class system with which they had been familiar for such a long time. They suffered discrimination not only in society at large, but also at the workplace. Factory production itself required a division of labor and job ranking. It was only natural that those who had only had experience of life in a feudal society should see factory life and procedures in terms of status relationships. 

Status in the company was above all decided by one's school record. Those who had completed the minimum compulsory state education became blue-collar workers; middle school graduates were employed as white-collar workers, and university graduates as managers. To an extent, of course, a certain level of schooling reflects a certain level of ability, but what angered workers in Japan until the 1950s was that one's school record was affected less by one's own abilities than by the financial circumstances of one's parents. Apart from exceptional schools such as the Peers' School (Gakushuin) parental circumstances did not matter in elementary schools; what counted there was ability and brute force. But above the elementary school level, progress was determined by a child's family circumstances. If the family was poor, the child soon had to go out and work, in which case, no matter how talented the child, the path to social advancement was closed. A great many of the leaders of pre-war unions in Japan had joined the labor movement out of feelings of frustration at being forced to become blue-collar workers by their families' poverty. 

Among Japanese workers there has seldom been that feeling so common among the English working class, for example, that it is natural for a worker's son also to be a worker and that one can be proud of being a member of the working class. Most Japanese workers would rather not have been members of the working class. If they themselves could not escape from being such, at least it might be possible for their children. Before the war, the most common 'escape route' was to save up enough to be able to buy some machinery and set oneself up as the master of a small engineering workshop. Today, workers still seek to send their children to first-rate universities and gain employment as elite salarymen with top class companies. This is the historical background to the insistent demands made by the post-war union movement, under the slogan 'democratization of management', for improvements in the status relationship between blue- and white-collar workers. 

As part of their program to democratize Japan, the Occupation authorities promoted the formation of labor unions and enacted legislation extending to all workers the right to organize, to engage in collective bargaining, and to strike. Strengthened by this policy, labor unions formed one after another all over the country. Most were organized on a workplace or company basis and included both blue- and white-collar workers in their memberships.
Not a few unions were even led by white-collar workers. During the war, various bonuses paid and allowances in kind provided to blue-collar workers in an effort to raise production had narrowed wage differentials between blue- and white-collar workers, and the severe inflation of the post-war years had closed the gap still further to almost negligible proportions. Life was hard for both groups, and white-collar workers too felt a keen desire for improvements in working conditions, which led them to join unions. The level of white-collar union membership in Japan today is still high compared with rates in other countries, but this dates back to the particular conditions obtaining in the early post-war period. Many white-collar workers, the majority of whom were middle school graduates, also resented the fact that elite management jobs with their high status were monopolized by a small number of university graduates, and together with blue-collar workers, they began to call for the democratization of the company and the removal of the status system. It was only natural that blue- and white-collar workers should come to voice such demands jointly as members of the same union organization. 

The campaign to "remove status differentials" included the replacement of day wages by monthly salaries and the payment of bonuses and retirement pay to blue-collar workers. Among the other significant changes were the extension to blue-collar workers of the various welfare benefits -- company housing, canteens, social clubs etc -- only enjoyed by white-collar staff before the war. The removal of these status differentials came about gradually through a series of major industrial disputes in the 1950s as well as the start of the shuntō campaigns in 1955.

The organization of shop floor workers and office staff in the same union was to have a major effect on the subsequent character of the Japanese labor movement and also helped to determine the nature of Japanese management. It is fundamentally due to this particular character of labor unions in Japan that Japanese blue-collar workers have over the years made more progress than their fellow-workers in other countries. The wage differentials between the two groups gradually narrowed. The wage profile of blue-collar workers came to resemble more and more that of white-collar workers with its increments based on length of service. This did not, of course, simply happen as a result of union pressure. Employers and managements soon realized that it was in their interest to raise workers' morale and promote stable labor relations by reducing differentials between blue- and white-collar workers and they positively and consciously took steps to do so. Some observers have characterized the 'white-collarization' of Japanese blue-collar workers as the main feature of Japanese labor relations,[15] while Japanese employers gradually decided to incorporate their workers' desire for 'single status' into a new system of labor management.

7. Meritocracy and the revision of the seniority system

While Japanese employers have always been approving of the enterprise union and have stressed the need to maintain it, they have not shown the same consistency with regard to the other two main features of Japanese labor relations, 'lifetime employment' and seniority pay and promotion. The main champions of 'lifetime employment' have been the unions; employers, if left to themselves, would no doubt prefer a system that allowed them to control the size of the workforce freely as economic conditions dictate. The seniority system with its automatic salary increments and promotions contingent on length of service is also hardly an optimum arrangement as far as employers are concerned. After all, 'lifetime employment' means that workers need not fear dismissal, and automatic pay rises and promotions with increased length of service can lead to an increase in the number of indolent staff. A system in which staff had to compete constantly for promotion and higher wages would, from the employer's point of view, lead to all-round improved efficiency of management.  Japanese managers have therefore not simply operated a seniority pay system. Employees' pay rises are also determined by regular assessments of their work and attitude. In the immediate post-war years, however, when great hardship was widespread, most workers wanted the seniority wage system which guaranteed pay rises in accordance with the individual's particular stage of life. Managers also accepted the extension of the system throughout the company as it had previously been applied to white-collar employees. 

In the early 1960s, however, employers successfully implemented a transformation from the principle of seniority to one of meritocracy as the basis for determining wages. One of the advantages of the seniority system for employers had been the fact that it kept starting salaries low, but throughout the 1960s the annual double digit growth rate in the economy led to an increased demand for labor; it was a seller's market, and starting salaries for new employees rose sharply. Higher starting salaries under the seniority system had the effect of pushing up wages for all employees, thus increasing the firm's total wage costs. Managers began to reevaluate the seniority system, and gradually more and more firms cut back the seniority component of the wage and incorporated a meritocratic element determined on the basis of an assessment of each employee's work.

The spread of the 'meritocratic wage principle' was due to the shift in the balance of power among Japanese labor unions as well as the fact that it actually appealed to the Japanese worker's sense of fairness. As I indicated earlier, before World War II, family poverty had prevented many workers from going on to higher education despite having a good school record and individual ability and talent. Indignant at the unfairness of Japanese society, such workers often became leading figures in the labor movement, which was effective in reducing the discrimination gap between blue- and white-collar workers. But in the 1960s, the rate of those going on to higher education showed a dramatic rise. A high school education had now become virtually compulsory, and the numbers going on to university increased sharply. During the high economic growth period families became better-off and also suddenly smaller as family planning spread throughout society. Going on to higher education was no longer determined by parental circumstances but mainly by academic results. Meritocracy -- the idea that those with ability should be treated accordingly -- became the dominant value in Japanese society. 

More companies now began to stress ability when determining promotions. There was always a fundamental contradiction between the career-long employment system and the seniority system when it came to deciding promotion. The number of management positions naturally decreases the higher one rises in the company, and this restricts the possibilities for those automatically rising to higher positions through the seniority system. During the high growth period when companies were expanding and more management positions were created, this contradiction was not so evident, but from the mid-1970s onward, lower economic growth suddenly made it visible. Here too the change from the seniority principle to the meritocratic principle was a key factor. The career-long employment system was also gradually changing; it became normal for those university-educated with little prospect of becoming top executives to be transferred to subsidiary companies often ten years or more before they were due for retirement. Employees were thus forced into long periods of intense competition for the limited number of such posts, and it is this competition which is ultimately responsible not only for the long hours worked by Japanese employees, which seem to be so difficult to reduce and which are often criticized abroad, but also for social problems such as the karoshi (sudden death from overwork) phenomenon of recent years.

8. Japanese labor relations and 'equity'

Finally, I would now like to make some observations which might facilitate an appraisal of Japanese labor relations viewed from the standpoint of 'equity'. As I stated at the outset, judgments on whether a system is 'fair' or not will inevitably differ according to the standpoint of the one making the judgment and will strongly reflect the circumstances of that person's own country and the time in which the judgment is being made. What I have to say, therefore, about equity in Japanese labor relations is strictly my own personal interpretation and, as it stands, cannot serve as a basis for judging industrial relations in other countries.

Positive factors

1) Job security
From the standpoint of equity, the job security that results from the practice of career-long employment is certainly one feature of Japanese industrial relations that deserves to be judged positively. It seems at least to receive a relatively more positive judgment from foreign workers employed at Japanese companies overseas than it does from Japanese workers in Japan.[16] This difference is probably accounted for by the fact that in Japan, job security for regular workers has come to be more or less taken for granted by society and certainly by workers themselves, whereas in the West, where workers never know when they might be laid off, job security is highly valued. 

Since such job security, the seniority system, and company welfare policies are able to guarantee a stable workforce, companies are able to develop long-term business plans, train and retrain their employees and thus ensure a continuous high standard of work. Today, when human factors such as the worker's aptitude and technical skill are of increasing importance in the drive for higher quality and greater productivity, the job security assured by the practice of career-long employment is of no small significance. 

2) Egalitarian approach to employees' status
A marked feature of the post-war labor relations scene in Japan is the relative lack of demarcation between blue-collar and white-collar workers. Manual workers and office staff are all paid on a monthly basis, and all receive bonuses and retirement pay. Actual wage differentials between the two groups of employees are far narrower than they were before the war, and compare very favorably with those in other countries. Moreover, in principle, the manual worker can be promoted to white-collar jobs. 

A noticeable feature of Japanese-style management in Japanese companies overseas which seems to be highly approved of by the workers of those companies is the lack of outward display of discrimination towards manual workers: managers wear the same uniform as other employees, eat in the same canteens, and use the same toilets and car parks. Despite obvious historical and cultural differences, it seems that this 'egalitarian approach can be positively taken up outside of Japan.[17] 

3) Worker involvement in shopfloor decisions
The fact that blue-collar and white-collar workers are treated relatively equally, and that there is little 'craft-consciousness' in company employment means that it is possible to establish close channels of communication, of a type not seen in the West, between technical staff and production line workers, and such communication obviously has an effect on productivity. For example, the development of new products is not simply left to technicians and designers; at a certain stage production workers also join the process, and the product is the result of joint consultation between all concerned. When a new product passes from the trial stage to large-scale production, there are thus likely to be few problems for the production workers, which in turn has its effect on productivity. [18] When, in contrast to this, a clear line is drawn between technicians and production workers, a strict division of work results in which workers are expected simply to operate a production process set up by the technician in order to produce products which have also been conceived by the technician. In such a situation, it is difficult to introduce anything like a workers' QC circle,[19] for no matter how good workers' suggestions based on their shop floor experience may be, they cannot easily be put into effect. 

Negative factors
1) Intensified competition amongst workers
   The main function of a labor union is to promote solidarity between workers and limit competition amongst them. Craft union members, for instance, decide as a union to refuse to work for less than a certain rate or they jointly resolve not to work over and above a certain period of time. This amounts to equality of result, but for Japanese workers this equality of result is a kind of perversion of equality; they cleave to the notion that a talented worker who works hard ought to be rewarded. For them, equality of opportunity is what counts. With such a notion, however, it is difficult to regulate competition between workers. The very fact that unions are organized on an enterprise basis also makes it hard to restrain competition between workers. In the fierce competition between firms, unions do their utmost to ensure that their own company wins out, which requires, of course, that they compete with workers in rival companies.  

Moreover, there is a contradictory element embedded in the Japanese-style 'blue-and-white-collar union' in that while it is supposed to be an organization that defends the workers' interests, it also includes in its membership, for anything up to ten years after recruitment, so-called 'elite workers' -- graduates of first class universities who have been marked out for management positions. Such union members are prone to be sympathetic to management's views. 

2) A double standard applied inside and outside the company
This is not so much a problem of Japanese labor relations as a problem of Japanese management in general. The cohesive power of Japanese companies tends to stem from a double standard sometimes operated inside and outside the company. When competition between companies is especially intense, there is a tendency for Japanese managements to resort to any means, fair or foul, to gain the upper hand over a rival. This can include behavior that is socially unjust or even sometimes illegal; if it results in victory for one's own company, anything is justified. The problem is that in the Japanese company there is no systematic inbuilt means of checking and restraining such disregard for, or willful ignorance of, social rules.

3) Excessive conformity
Japanese companies are not simply organizations dedicated to producing and selling goods; they have a strongly 'collective' character. Some trace this back to the feudal concept of the ie (house); others consider its origins to be in the organization of village life in the pre-industrial period. The cohesive power of such 'collectives' makes strong almost compelling demands for conformity on each individual employee. The tendency then is for each person to be concerned about what the others are thinking and to hold back his own views. Creative thinking is hardly likely to emerge easily from such organizations.


If one opposes the will of the majority or goes so far as to insist on one's own opinion, one is regarded as a disturber of the 'harmony of the group' and is likely to be removed from the workplace. This is sometimes resorted to as a means of getting rid of minority voices in the union. Among cases that have gone to litigation there have been cases of certain individuals being denied work or given unreasonable jobs, or cases of straightforward ostracism where an employee has been refused ordinary civilities and conversation by his or her colleagues. It is also not rare for this conformity with the majority to be demanded from the individual not only during working hours but also outside the company, when it amounts to an infringement of personal liberties. The most extreme example of this is perhaps the so-called 'company election', where employees are strongly 'urged' to take part in electioneering for company managers or union officials who have declared themselves as candidates. 

4) Discriminatory treatment of non-regular workers
The main problem here is that there are many workers employed by Japanese companies who do not enjoy the benefits of the job security that is otherwise the merit of the Japanese employment system. Despite companies' claims to be 'communities for all who work here', in fact, many workers are denied full membership of the company 'community'. While there may be career-long employment for regular employees, these other workers are invariably used as buffers by which companies can adjust their labor supply to meet fluctuations in business demand. Their wages are lower than those of regular employees, and they either receive no allowances such as bonuses and retirement pay or else very little, and they have restricted access to company welfare facilities. The situation of these part-time and temporary workers resembles that of blue-collar workers before the war, and they are faced with similar discrimination.

What has prevented this problem from erupting into a major difficulty has been the large number of part-time female workers, especially housewives, who wanted short-term jobs with flexible working conditions that would allow them to look after their families as well. [20] As many of the husbands were regular workers anyway, they were already being paid dependency allowances. And if the wife's wages exceeded one million yen a year, she would lose legal recognition of her status as the dependent of her husband, the family could no longer claim a tax reduction, and the company would stop paying the dependency allowance. Working housewives therefore did not press very strongly for wage increases. 

If present labor shortages continue, Japanese employers will have no alternative but to resort to the large-scale employment of foreign labor. As foreign workers are normally only allowed to work in Japan for short periods, there is little possibility of their being taken on as regular employees. There is therefore currently concern that serious social problems may result from their being subject to double discrimination, as non-regular employees and as foreigners.


1. In recent years many observers have pointed to the general efficiency and high productivity of the Japanese economy, but by international standards, productivity in areas outside of manufacturing industry, such as agriculture and commerce, is not high. Those foreigners well-acquainted with Japan often remark on the inefficiency of office work in Japanese companies in general (see Jon Woronoff, Japan's Wasted Workers, Allanheld, Osmun & Co., 1983). What all are agreed on, however, is the high level of efficiency on the shop floor in Japan's major manufacturing companies. It is this efficiency in quantity, quality and accurate delivery that ensures the international competitiveness of Japanese products.

2. Various views have been put forward on this point. One of the leading figures in the field of Japanese studies, R. Dore, has emphasized the late development effect. Ronald P. Dore, British Factory - Japanese Factory;The Origins of National Diversity in Industrial Relations, 1973, Berkeley, University of California Press.
Many economists have also pointed to the Japanese people's high levels of savings as having made possible the continuous expansion of investment in industry.

3. James C. Abegglen & George Stalk Jr., KAISHA; The Japanese Corporation, Basic Books Inc. 1985.

4. kanban is Japanese for 'signboard'. "It is often called the kanban system because materials, parts, and components are produced and delivered just before they are needed. Each carry a small card, or kanban in Japanese describing the part's origin, destination, identity, and the quantity required. The most obvious characteristic of the factories with the 'just in time' system are their low level of inventories." Abegglen and Stalk, KAISHA p.92.

5. Abegglen and Stalk, KAISHA p.104.

6. OECD, OECD Reviews of Manpower and Social Policies; Manpower Policy in Japan 1972.

7. Hikari Nohara, Eishi Fujita eds., Jidoshasangyo to Rodosha (Workers in the Japanese Automobile Industry), Hōritsu Bunkasha, 1988.

8. Shakaikeizai Kokuminkaigi (National Social and Economic Council), Nihongata kigyō fukushiron (Japanese-style Company Welfarism), Sanrei Shobō, 1984.

9. "Once they have committed themselves to the 'home ownership scheme', the repayments of one million yen a year determine their behavior. They get caught up in the competition to become foremen, earn higher wages and advance to ever higher positions." Hikari Nohara, Eishi Fujita eds. Jidōshasangyō to Rōdōsha , p.254.

10. There has been a more or less continuous downward trend in union membership from the peak of 55.8% reached in 1949. Throughout the 1960s and into the early 1970s membership remained stable at around 35%, but after 1975 it declined annually, reaching 25.2% in 1990. See Japan Ministry of Labor, Rōdōkumiai kiso chōsa (Labor Unions Basic Survey). However, 'the number of employees' used to assess official surveys of union density also includes employers, managers, and even members of the Self-Defense Forces and the police, who are prohibited by law from belonging to a union. If all these are omitted, the real figure for union density in Japan would probably increase by 5%. See Kazuo Nimura, "Rōdōkumiai soshikiritu no saikentō" (A Re-examination of the Statistics of Labor Union Density) Ohara shakaimondai kenkyūsho zasshi (Journal of the Ohara Institute for Social Research) No.330, May 1986.

11. Other key terms often used in the characterization of Japanese labor relations are 'familyism' (kazokushugi), 'groupism' (shudanshugi) or 'communalism' (seikatsu kyōdōtai). I do not have the space here to discuss these theories, however, and would refer those interested to Kikuo Andō & Akihiro Ishikawa eds. Nihonteki-keiei no tenki (Japanese-style Management in Transition), Yūhikaku, 1980. Masumi Tsuda ed. Gendai no nihonteki-keiei (Contemporary Japanese-style Management), Yūhikaku, 1982.

12. Regular employees are as a rule recruited only once a year fresh from school graduation. They are not therefore hired for a particular skill, but on the basis of their school record and are simply assigned to one of the two categories of technical or office work. Employees who are hired for a particular skill are only those unable to work without a state-recognized qualification, such as doctors, nurses, and bus drivers.

13. Kazuo Nimura "Nihon rōshikankei no rekishiteki tokushitu" (Historical Characteristics of Labor Relations in Japan) in Shakai Seisaku Gakkai (Association for the Study of Social Policy) ed., Nihon no rōshikankei no tokushitsu (The National Character of Industrial Relations in Japan), Ochanomizu Shobō, 1987. This article is translated into German as "Historische Charakteristik der industriellen Beziehungen in Japan" KAGAMI: japanischer zeitschriften-spiegel Jahrgang XIII Heft 2/3 (1986).

14. Akihiro Ishikawa & Yoshimoto Kawasaki eds. Nihon shakai wa byōdōka; chuken sarariman no imeiji (Is There Equality In Japanese Society? - The Image of the Salaryman), Saiensusha, 1991.

15. Kazuo Koike, "Internal Labor Markets: Workers in Large Firms" Taishiro Shirai ed., Contemporary Industrial Relations in Japan , University of Wisconsin Press, 1983.

16. Malcolm Trever, Toshiba's New British Company: Competitiveness Through Innovation in Industry, Policy Studies Institute, 1988. Ruth Milkman, "Labor and Management in Uncertain Times: Renegotiating the Social Contract" Paper prepared for Alan Wolf ed., The Recentering of America: American Society in Transition, (University of California Press, forthcoming).

17. Malcolm Trever, Toshiba's New British Company.

18. Minoru Itō, Gijutsu kakushin to hyuman nettowaaku-gata soshiki (Technological Innovation and the Human Networking Organization), Japan Institute of Labour, 1988.

19. Considered from the equity viewpoint, QC circles may have both a positive and a negative side to them. The positive side is that QC circles can help to make jobs safer and more pleasant for the workers who have to do them. The minus side is that in the effort to cut costs, workers may well decide to increase the amount of work they have to do. In other words, the question is how and by whom are the theme, object, and application of the results of the QC circle to be decided. See Michio Nitta Nihon no rōdōsha sanka (Workers' Participation in Japan), University of Tokyo Press, 1988.

20. Discrimination against part-time workers thus came to be linked with sexual discrimination, although this is by no means restricted to such workers; female regular employees too have frequently been subjected to it, and it is one of the main reasons why women do not rise to high positions in most companies. Since 1986, however, when the Equal Opportunities In Employment Act was passed, more and more companies have instituted systems enabling female regular employees to have equal access to promotion.

       Paper presented at International Symposium on Industrial Democracy and Labor in Modern Capitalism, Seoul, December 6 - 8 1991.

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