CONDITIONS OF WORK AND EMPLOYMENT SERIES No. 73
Productivity, wages and unions in japan
Takao Kato
INWORK
Conditions of Work and Employment Series No. 73
Inclusive Labour Markets, Labour Relations and Working Conditions Branch Productivity, wages and unions in Japan * by Takao Kato **
* The author is grateful for support from ILO. The paper has benefited greatly from comments and suggestions from anonymous referees, Susan Hayter, Daniel Vaughan-Whitehead, Edlira, Xhafa, and participants at the second experts meeting on Collective bargaining, wages and productivity, 3-4 October 2013, ILO, Geneva. ** Takao Kato is W.S. Schupf Professor of Economics and Far Eastern Studies, Colgate University; Research Fellow, IZA (Bonn); Research Associate, CJEB (Columbia Business School); TCER (Tokyo); CCP (Copenhagen and Aarhus); ETLA (Helsinki); and Faculty Fellow and Mentor (Rutgers). Email; [email protected]. Address: Department of Economics (Persson 222), Colgate University, 13 Oak Drive, Hamilton, NY 13346. Phone: 315-228-7562.
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First published 2016
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Conditions of Work and Employment Series No. 73 iii
Table of contents Abstract ....................................................................................................................................... iv
1. Japan since 1980: The Japanese Miracle, Lost Decade, Quiet Recovery, and global recession ....................................................................................................................................... 1
2. Productivity and Wages ......................................................................................................... 4
3. Unions ................................................................................................................................... 7
4. Wage bargaining and Shunto ................................................................................................ 8
5. Non-standard employment .................................................................................................. 11
6. Conclusions and Policy Implications .................................................................................. 12
References .................................................................................................................................. 15
Figures ........................................................................................................................................ 18
Conditions of Work and Employment Series ............................................................................. 28
iv Conditions of work and employment series No. 72
Abstract
This paper begins by providing the historical context for the study of the link between productivity and wages and the role of unions in Japan since 1980. Using quantitative data from a variety of surveys conducted by the Japanese Government and qualitative data from field research, it then documents significant changes in the nature of Japanese unions and Shunto wage bargaining and their role in generating the link between productivity and wages during Japans Lost Decade and subsequent quiet recovery. Wages did not lag behind productivity growth during the Japanese Miracle that preceded the Lost Decade thanks in part to the contribution of an effective neutral third-party institution trusted by all parties to the development of a share economy with strong cooperation between labour and management and a strong link between wages and productivity. During the Lost Decade, wages started to fall behind productivity growth, however. Negotiations over base wage increases (base-up) were less pervasive, and negotiations over bonuses took centre stage. The idea of establishing the market for annual wage settlements became less relevant, suggesting the diminishing value of the Shunto synchronization of wage negotiations. In the end, the Japanese bonus system proved to be less downward rigid than the base wage, and this downward flexibility of bonuses appears to be a major factor in lagging wages (along with an insufficient increase in the base wage when productivity rises). The possibility that the changing nature of Japanese enterprise unions was an underlying cause of lagging wages is explored, and policy implications are identified.
Conditions of work and employment series No. 72 1
1. Japan since 1980: The Japanese Miracle, Lost Decade, Quiet Recovery, and global recession1
The 1980s was Japans decade. The economy grew faster than most other advanced market economies. Many Japanese corporations rose to the premier league of the global marketplace and became household names in many parts of the world. To review briefly how the Japanese economy as a whole has evolved since 1980, annual time series data on real GDP per capita based on purchasing power parity (PPP) from the International Monetary Fund (IMF) have been used to produce figure 1 (note that the log scale is used on the vertical axis for its convenient rate of growth interpretation). Japan is placed in the global context by adding the same time series for the other G7 countries. A simple linear trend line from Japans per capita GDP in the 1980s suggested that Japan would surpass the United States and become No. 1 in the 1990s. It is understandable how the rhetoric of Japan as No. 1 became pervasive at that time.
Reflecting the impressive rise of Japanese firms as world class competitors, the Japanese employment system became a source of wonder for many corporations around the world and a popular subject of research for scholars of industrial relations, human resource management, and labour economics.
When discussing the Japanese employment system, it is important to keep in mind that the Japanese labour market is segmented, and that the term applies mainly to the primary segment and not to the secondary segment.2 The Japanese employment system consists of clusters of practices that are often distinct from the traditional Anglo-American model of a flexible labour market and hierarchical labour-management relations that are inclined to be adversarial. A variety of specific employment practices have been considered key elements of the Japanese employment system (see, for instance, Aoki, 1990; Koike, 2005; Morita, 2005). First, employee involvement and problem-solving activities at the grass-roots level are used to provide workers with opportunities to exert discretionary effort, acquire useful local knowledge, and share it with their co-workers and higher-level engineers and managers. They include shop-floor committees and various small group activities, such as quality control circles, zero defect, Kaizen, and cross-functional problem-solving teams. Second, there are extensive information-sharing mechanisms (often called j
