Myths about Japanese employment practices: An increasing insider–outsider conflict of interests

Abstract

It appears that Japanese employment practices, once hailed as one of the secrets to Japan's “miracle” of rapid economic development after World War II, are not keeping up with important changes in Japan's economy and society under deceleration of economic growth and aging of the population. Nevertheless, the current regulations protect the practices of lifetime employment security and seniority-based wages as a desirable work style. However, these practices not only deter labor market flexibility, but also entail social costs by creating a “wall” that divides insiders and outsiders of firm-specific labor markets, and this leads to large wage disparities. Furthermore, these practices create an “implicit packaged contract” between firms and their employees, allowing the firm wide discretion over employees' work style, including working hours and job placement. As more women pursue full-time careers, they are being forced into the difficult position of having to choose between their careers outside the home or their children. The difficulty of this decision has resulted in a rapidly declining fertility rate. This paper argues that Japanese employment practices need to be revolutionized to allow better work–life balance and an alternative lifestyle for an increasing number of dual-income families.