March of Japanese labour reforms stalled

March has always been a stressful, uncertain month in Japan.  Most companies, schools and universities start their new year around April 1st and this is also when corporate promotions and restructurings are announced.

Prime Minister Abe has been adding to the stress by trying to push through various labour market reforms, aimed at expanding “discretionary labour” by the end of the parliamentary session in June, but has had to row back on some of them due to the data on which they were based turning out to be severely flawed.

Status conversion rule

One piece of legislation which will be enacted from April this year is the new status conversion rule.  This will allow fixed term employees renewing contracts for more than five years – usually temporary workers dispatched from staffing companies, or part time workers or contract workers – the right to switch to indefinite employment with no fixed period.  In other words, the kind of lifetime employment, regular contract that Japan’s seishain (proper staff – see other posts on this here) have.

The gap in status, job security and benefits between seishain and” irregular workers” has been an enduring sore in Japanese society since the immediate postwar period of labour shortages in Japan when the lifetime employment system became established.  The proportion of irregular workers in the Japanese workforce has grown since the 1990s, to around 37.3% of the workforce – 10% up on 10 years’ ago.

Irregular workers will disappear – maybe

Toyo Keizai magazine has an article headlined “Irregular workers are disappearing” saying the new status conversion rule will be a big shock to companies that rely on non-permanent employees.  However surveys show very few employees and even HR managers are aware or understand the new rule, and companies are not making much effort to stimulate interest in it, unsurprisingly.

Japanese recruitment agencies go global – again

Presumably it will also be a shock to staffing agencies in Japan too, who have done rather well out of the rise in this sector of the workforce.  There is a further rule imposing a three year deadline for temporary employment from a temping agency, after which the company will have to hire the employee directly – which will come into force from September.

No wonder recruitment agencies have started a second bout of acquisitions overseas – recent acquisitions in Europe include Outsourcing acquiring JBW, Liberata and Ntrinsic in the UK and Orizon in Germany and Recruit acquiring USG People in the Netherlands.

 

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Japanese companies no longer growing their own

The wheels have been coming off Japan’s post-war HR system for some years now – whereby seishain or “proper” employees in Japan have been hired straight out of university, onto generalist, lifetime employment tracks, heavily weighted towards seniority-based promotion.  It stabilised the workforce in the immediate post war period when there were labour shortages, and worked well throughout the boom years, when there were places for everyone to go in an ever-expanding organisation.

Since the economic bubble burst, Japanese companies cut back on graduate hires and used contract staff to fill the gaps, but these contract workers had lower status, without job security and benefits, and there have been accusations that overreliance on less motivated contract workers to do quality checks, under pressure, has caused some of the recent scandals. Japan’s labour market is still relatively less mobile than in Sweden, Switzerland or the USA, according to Hays.

So maybe it’s time for “outsiders” to have a higher status.  This idea was floated by Nagisa Inoue in the Nikkei Asian Review, and now its sister magazine, Nikkei Business has a special feature “Your sell by date as an employee – the increasing pile up of employees who only have ‘age’”.

It looks at Panasonic, who have hired around 500 a year into management positions – over 40% of whom are over 35 years old. Panasonic’s founder, Matsushita Konosuke, said employees were family – and up until recently, managers were meant to select their successors from their juniors and develop them.  Now they have been allowed the option of saying they do not see any suitable successors, and can ask to look for outside hires.  The salary system is also being adjusted so that higher salaries than the norm for a position can be offered to those outsiders with specialist skills.

“I did think the next promotion was going to be me – I even tried to improve my TOEIC score so I could work globally, and made efforts to widen my job”, said a 40 something Panasonic employee – but his new boss was hired from outside.

Denso, the Toyota group automotive manufacturer set up a new division to develop components for the “connected car” and around 2/3 of its employees were hired from outside the company.  The division is also deliberately placed in Yokohama, away from the headquarters in Aichi prefecture and from the Tokyo branch office.  “We wanted to cut ourselves off from Denso culture” says one manager.

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The tragic limitations to Japan’s lifetime employment system

shukatsu-seminarSince the suicide of a young female employee at advertising giant Dentsu in December 2015 was deemed to be due to overwork, there has been a rash of articles in the Japanese media asking whether it’s time to change Japan’s lifetime employee “seishain” (regular or proper staff) system (previously blogged about here).

Nikkei Business described the main characteristics of the seishain system as:

  • No job role boundaries
  • Long work hours
  • Pay increases based on seniority

Which results in:

  1. Strict terms of employment, so when there is an an economic downturn, the employee can be reassigned
  2. Seishain as fixed costs, so it is difficult to transfer over non-regular staff into the system
  3. Seishain not being hired into a role, but into the company, so you do not have transferable skills which will enable you to work elsewhere
  4. Irrational human resource allocation because of features of the system such as retirement from line management at 55
  5. Difficulties in utilising seishain who have household or elderly care duties
  6. A reduction in pension and health insurance benefits because of transferring to a smaller company from a larger company
  7. The risk of losing the element of salary that was based on seniority if you change employers
  8. A lack of workers shifting from dying industries to growth sectors

There is still a big pay gap between seishain and non-seishain, and yet the real average pay of all employees in Japan has fallen since 2005 (with 2002 as the base=100, 2015 = 95).

30% of Japanese men and 10% of Japanese women work more than 49 hours a week, compared to 17% in the USA, 18% in the UK for men/6% for women, 16% of German men/4% German women, 15% of French men and 6% of women and 10% of Swedish men and 4% of Swedish women.

The percentage is even higher for Japanese seishain – 40% of men, 20% of women.

A Nikkei internet survey of 1343 Japanese employees revealed that the biggest reason (70%) for overtime was that there was such a volume of work. Just under 40% said there was a lack of people to do the work.  Other reasons were that there were particular features of their work requiring overtime, that there were too many meetings, that it was expected of them, that it was difficult to go home if others were working and the least popular reason was “in order to increase pay”.

But as one of the participants said in one of my seminars last week – Japanese employees are very expert at stretching their work out so that overtime becomes necessary.  The urge for 100% perfection in the tiniest details is also a root cause I would say.

There are signs of change – some companies have started paying part timers and contract workers exactly the same as seishain and many companies are trying to improve productivity and reduce working hours.

Prime Minister Abe announced in September a Council for the Realization of Work Style Reform – to tackle 9 areas – listed here – in an attempt to address the limitations of the lifetime employment system.  Interesting to see that “the issue of the acceptance of foreign personnel” is #9.

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Are you ‘regular’? Probably not, if you were hired outside Japan, or female

shutterstock_69400045My first essay on Japan, a thesis for my Modern History & Economics degree, was on the day labourers in post-war Japan and the so-called dual labour market.  It’s with a sinking heart, nearly 30 years’ on, that I have to acknowledge that the concerns I had then, about the harm done by erecting an impermeable wall in a labour force between ‘permanent’ and ‘temporary’, continue to this day, when thinking about how to improve diversity and inclusion in Japanese companies.

The Japanese word for “regular” or “permanent” or “lifetime” employee is seishain.  The character for sei can also mean “proper” “right” or “honest” and shain means employee.  This says it all really.  Technically, seishain are people who join the company as new graduate hires, on or around April 1st, in a cohort.  They usually don’t have a formal employment contract or job description, but the unwritten agreement is that they will be rotated through a generalist track, and will agree to be moved to whatever location that might involve.  In return for this flexibility they are guaranteed management level jobs and salaries after a certain amount of time, and will not be forced out of the company until they reach retirement age.  Even when they reach retirement age, the company will make efforts to re-employ them, off line management.  The salaries may be modest, but there are plenty of benefits and the company union (membership is automatic for seishain) will protect them at least until management level.

There are no barriers as such to women (or non-Japanese) joining the seishain track, but very few do.  When I first started working at Mitsubishi Corporation in Japan, there were plenty of women seishain, but they had joined the administrative seishain track –  so-called Office Ladies – which meant that they had not signed up to be rotated or relocated and were therefore not candidates for management positions.

Like many Japanese companies in the 1990s, Mitsubishi Corporation abolished the Office Lady track, as it was becoming uneconomic to have so many administrative people on seniority based pay, and numbers were rising beyond what was needed for increasingly automated office support.  The assumption had been that women would leave as soon as they got married, or at least once they had their first child, but in fact women were getting married later or not getting married at all, or not having children, and staying at the company.

Once the Office Lady track was removed, if there was a further need for administrative staff, companies hired temporary workers to fill administrative positions. Similarly, for manufacturers in Japan there was a steady increase in the number of factory workers who were on short term contracts.  Overall, the Japanese workforce is now heading towards 40% being on short term or part time contracts.  But as I have written in a previous article, in some white collar sectors this actually led to too many disengaged support staff making too many errors, so some Japanese companies have quietly reintroduced the Office Lady track.

The assumption is that to become a manager, you need to have worked in several locations

Those women who were already on the old Office Lady track were offered the chance to shift into what Mitsubishi rather clumsily called “kouiki jimushokushou” which meant “wider area administrative roles”.  The “wider area” referred I think both to the idea that they could be relocated and that their job content might be broadened, as a path towards the management track.  They could undergo training and take various tests before making a full transition to management.

To this day, most Japanese companies operate on the assumption that to become a manager, you have to have worked in several locations and if the company is globalising, to have worked overseas if you want to be a senior manager.

So, you can probably see where this is going in terms of hitting Prime Minister Abe’s targets for the percentage of women who should be in management – even if there are plenty of women employees, most of them are not viewed as “proper” management material.  They are more often than not on part time or temporary contracts. I even heard recently about some Japanese women who were on the management track, who asked to be expatriated abroad (because they had already studied abroad or been brought up outside of Japan as child, so had the linguistic ability and resilience needed), but had their requests refused.  They then quit the company and moved to Europe or the USA under their own steam, to do MAs and MBAs, only to find male employees, sponsored by Japanese companies, on the same courses “learning to be global” but still far less effective than they were.

So, one solution might be for Japanese companies to track these women down abroad and try to lure them back into management positions.  Actually, some of them are consultants at the company I represent in Europe – Japan Intercultural Consulting. As my informant said, they might be open to moving back to Japan under the right circumstances, because many of them have older parents living there they feel obligations towards.  But they know that they will still somehow be regarded as not quite ‘proper’.

Another solution to making Japan HQ management more diverse, in terms of gender and nationality would be to have more non-Japanese employees in management positions there.  The official objection usually given to this is that there is too big a language barrier.  But of course the real issue is again that people hired abroad are not viewed as seishain. Until Japanese companies address this taboo on non-seishain becoming managers in more than name, the “inclusion” part of Diversity & Inclusion is a long way away.

For more detail on the technicalities of regular versus non-regular status in Japan, and how overseas employees might be classified, and some figures for the Top 30 Japanese employers in Europe, please see the next post.

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Inclusive words

I was discussing with a client recently the way accepted terminology keeps changing in the UK business world.  Apparently “flexible working” is now being renamed “agile working”.  “Agile” working is meant to have a wider definition than flexible working – the idea being that the focus should be on performance and outcomes, allowing maximum flexibility on the who, what, when and where of executing the work.  “Flexible” usually (as it does in Japan) means flexibility on the hours worked and tends to be used when workplaces are trying to be family friendly towards women.  “Agile” working implies it is a way of working for every employee.

The client’s own job title was another indicator of change – “head of diversity and inclusion”.  Diversity has become a more commonly used word in Japan now, mainly to mean gender diversity, but increasingly companies are looking at other kinds of diversity such as nationality or sexuality.  The reason that “inclusion” has been added to “diversity” in the UK is to ensure that companies don’t just focus on targets for diversity, but also how the corporate culture should change to ensure that people with different backgrounds to the mainstream do not feel excluded from decision making or promotion or the everyday conversations and meetings that are going on around them.

Sometimes I find myself thinking that all this emphasis on terminology is irritating and a distraction, but then I remember what it felt like to be a foreign employee in a Japanese company headquarters.  I have no complaints about the way I was personally treated, but I regularly used to point out, when asked for my input into English language documents like the annual report – that it seemed alienating to people outside of Japan if employees were broken down into male/female, or Japan-employed and overseas-employed. I knew why these categories existed – because at the time, 99.9% of females were in administrative track jobs, and 100% of men were in management track jobs – so this was a simple way of indicating the ratio of administrative versus line management/sales in the workforce.  The Japan-employed and overseas employment figures aligned with the tantai (unitary – Japan entity only) and renketsu (consolidated) accounting methods.

But it nonetheless made me feel like being female or “overseas” was a lower status.  This has all changed now of course, as the distinction between administrative and management track seishain (lifetime employees) has disappeared in many companies.  With holding companies now being allowed, and changes in accounting methods, the tantai and renketsu distinction for employees is also less meaningful than it used to be.

I still have Japanese clients consulting me about what to call their various categories of employees however.  Some choose “rotating staff” to describe Japanese expatriates – but again this implies that anyone hired outside Japan has no chance of being posted elsewhere.  One British employee complained to me about an email from Japan HQ which used the term “subordinate”.  Even in British class ridden society, we prefer to call all employees “colleagues” or “team members”.

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