The Japanese Employment System: Adapting to a New Economic Environment

Abstract

Innumerable kinds of ‘markets’ exist, but none is as difficult to grasp as the labor market. One reason for this is that the quality and volume of labor services provided by markets can vary greatly in response to the plans and actions of the workers who provide those services. Businesses that try to ensure quality labor services must therefore maintain certain wage levels while also motivating their employees and increasing their productivity by designing appropriate training programs. However, it is impossible for individual labor markets to respond to the demands of each firm. As a result, many businesses have formed separate ‘internal labor markets’, cut off from the ‘external labor markets,’ in order to allocate and price their employees. The emergence of such multiplicity has been a notable trend, and it has increased the challenge of understanding the labor market. Markets comprise numerous institutions and practices, and thus it is no easy matter to grasp adequately how they function. Even among industrialized nations, the Japanese labor market, with its well-developed internal labor market and its countless institutions and practices, is considered one of the most complex.