2000 annual review for Japan

This record reviews 2000's main developments in industrial relations in Japan.

Economic developments

GDP increased by 1.7% in real terms in 2000, substantially higher than the 0.8% growth rate for 1999. A major factor was the increase in fixed capital investment by the private sector, particularly investment in information technology (IT) industries. The real growth rate in private fixed investment was 4.5% in 2000, compared with a decrease of 4.2% in the previous year. Since the collapse of the 'bubble economy' in the early 1990s, the Japanese economy has remained sluggish, and the 1990s have been referred to as 'the lost 10 years'. The economy in general improved somewhat in 2000 although the unemployment rate remained at a high level of 4.7% and shows no sign of declining, so that the economy is still showing no signs of a strong recovery.

A distinctive characteristic of recent years has been the continued decline in price levels. Even when corrected for the GDP deflator (an indicator of inflation in the whole of the economy over one or more years, derived by dividing total GDP at current prices by total GDP at constant prices), prices declined by 1.4% and 1.7% in 1999 and 2000 respectively. That is, there appears to be a structural imbalance between the real economy and the monetary-financial sector. Perhaps one of the major policy issues in this area is how to deal with the bad debts of financial institutions.

Political developments

At the beginning of 2000, the cabinet led by Prime Minister Keizo Obuchi was in the second year of its policy giving top priority to expansionary economic policies. After a change of Prime Minister in July 1998, the Liberal Democratic Party (LDP) had successfully formed a coalition with the Komeito and the Conservative Party.

However, in April 2000 Prime Minister Obuchi suffered a cerebral haemorrhage, was admitted to hospital and soon after lapsed into a coma. In response to this unexpected event, the senior party leaders of the LDP met to consider options and agreed that Yoshiro Mori (then secretary general of the party) should become LDP president and thus Prime Minister. Theoretically, this procedure represented no more than the selection of the candidate for party leader. In reality, however, Mr Mori was elected as president in accordance with the rules of the LDP and was subsequently elected as Prime Minister by the Diet (parliament). The mass media subsequently labeled this a 'secret election of the Prime Minister'. These events became a major factor in the continuing low approval rate of the Mori government despite the fact that it took over the Obuchi administration's expansionary economic strategy and undertook new initiatives such as an IT strategy and educational reform.

Collective bargaining

General

In Japan there is no practice of labour-management negotiations at a national or regional level to determine working conditions. The most influential national organisations in Japanese collective industrial relations are the Japanese Trade Union Confederation (Rengo) on the labour side and the Japan Federation of Employers' Associations (Nikkeiren) on the employer side. Although they occasionally meet and exchange views, they do not enter into formal agreement on working conditions. Actual agreements on working conditions are concluded as a result of negotiations between labour and management in individual enterprises.

However, it should be noted that, in Japan, enactment or amendment of labour legislation or major labour policy changes are first discussed in tripartite (public authorities, unions and employers) deliberative councils and a certain level of consensus between the parties concerned is reached beforehand. In this sense, the government's labour policy can be regarded as the result of mutual agreement between labour and management.

Negotiations between labour and management about key working conditions, and especially wages and salaries, are concentrated in spring each year. The agreements reached as a result of such negotiations, which are generally known as Shunto, cover the period from April to the following March, which corresponds not only to the government fiscal year but also to the financial year for most private companies (with spring as their starting point and finishing point). The practice of such negotiations became established in the 1960s and still continues today.

The general pattern for these spring-time negotiations is that major manufacturers in leading industries such as electrical goods or cars take the lead in bargaining and agreements and are then followed by other large companies and later again by small and medium-sized enterprises.

Most companies have a system of periodic wage increases for regular workers according to which, barring exceptional circumstances, there is a virtually automatic annual increase in wages as employees move up the wage scale. This annual increment accounts for the major portion of the spring wage increase so that the so-called 'base-up' portion is in fact very small.

Apart from wages, one of the major issues in the spring negotiations in 2000 was continuing employment for older workers in major companies. In the past, companies generally set the retirement age at 60 years, which corresponded to the age at which the payment of the old-age pension commenced. However, the age from which payment of the old-age pension commences is to be raised gradually to 65 year and, as a result, the continuing employment of workers in their early 60s has become an issue.

Pay

According to the Ministry of Health, Labour and Welfare, the result of the 2000 Shunto negotiations was an average 2.06% increase in wages – a further decline from the increase of 2.21% in the preceding year and the lowest level since surveys began.

Workers whose wages are determined by the spring-time negotiations do not constitute the majority of the workforce – indeed, in 2000, the proportion of the workforce directly covered by the Shunto was 21.5%. Nevertheless, the wage increases which result from labour-management bargaining in this sector have a major influence on general wage levels. They set the market rate and affect wages in the 'non-bargaining sector'. Other mechanisms which operate to pass on the wage increases gained by the 'bargaining sector' are the wages of public servants and the minimum wage system.

In principle, the salaries of national public servants are adjusted in accordance with the recommendations of the National Personnel Authority, which is independent of the government. These recommendations are based on a quite detailed comparison of the wages of private sector and public sector workers disaggregated by occupation, age, years of service and so on, and of course usually reflect the wage outcomes of the bargaining sector. The wages of public servants at local government level are determined in the same way.

The average spring wage increase is generally taken into consideration by the Minimum Wage Deliberative Councils when determining the legal minimum wage. These Councils are tripartite bodies representing unions, employers and the public interest. The wage increases gained by the bargaining sector are eventually passed on and also reflected to some degree in the wages of part-timers and other low-paid workers.

On the other hand, it should be noted that the spring wage increases are not directly reflected in the trend in average wages. For example, since the wages of newly recruited workers are lower than those of workers who are about to retire, if there is an increase in the number of both old-age retirees and new recruits, the effect is to lower average wages. Moreover, the wage increases negotiated in spring relate only to the basic component of the wage. However, in addition to the basic component, there are the non-regular components and bonus payments, both of which constitute a substantial part of the wage and fluctuate widely in response to economic conditions. Moreover, within the regular component of the wage, there is a performance allowance which fluctuates depending on the state of the industry. For Japan as a whole, the weight of performance pay within the regular component of the wage is not large, but when the overall movement in wages is small, changes in such components can have a fairly large effect on the overall outcome.

The trend in average wages is published in the Ministry of Health, Labour and Welfare's Monthly Labour Survey (which covers establishments with five or more employees). Total cash earnings in 2000 were JPY 355,474 (EUR 3,573) per month, which represented a 0.5% increase over the previous year (compared with a 1.3% decrease in 1999) – the first increase in three years. This increase was composed of a 0.7% increase in the regular component of the wage, a 4.4% increase in the non-regular component of the wage and a 1.1% decrease in bonus and other special payments. The figures for 1999 were 0.1%, 1.5% and 5.8% respectively. The large increase in the non-regular component of the wage reflects the somewhat better recent economic conditions. Adjusted for the fall in prices, real wages increased by 1.4%.

As indicated, there was a slight increase in wages in 2000 but most of this increase was due to changes in the non-regular component of the wage or those parts of the regular component which are highly variable in character. In other words, this does not constitute a fundamental improvement in wages or in workers' incomes and is one of the major factors which accounts for the lack of upsurge in personal consumption.

In 2000, based on the Ministry of Health, Labour and Welfare's Basic Surveys on Wage Structure, women's 'monthly standard wages' as a proportion of men's stood at 64.3% for workers who are graduates of senior high schools, 64.5% for university graduates and 75.5% for graduates of higher professional schools or junior colleges. In June 2000, the average scheduled cash earnings per month for all female employees were about 65% of those of male employees. When adjusted for factors such as length of service and job content, women's pay as a proportion of men's was about 80%.

Working time

Apart from the minimum working time standards laid down in the Labour Standards Law, there is no other national standard agreed between labour and management. In general, working hours are decided on the basis of negotiations between labour and management at the individual enterprise level.

With some exceptions, the current minimum standard laid down by the Labour Standards Law is eight hours per day and 40 hours per week. In other words, the standard is based on the premise of a five-day working week. However, as is frequently the case, extension of working hours may be specified in individual labour-management agreements, although the guidelines issued by the Ministry of Health, Labour and Welfare set a maximum limit. Moreover, workers with at least six months' continuous service are entitled to a minimum of 10 days' paid annual leave and the number of days increases with the length of service.

According to the results of a survey by the Ministry of Health, Labour and Welfare in December 1999, average scheduled weekly working hours were 39 hours and 14 minutes for full-time workers. However there is quite a large disparity according to the scale of the enterprise, with scheduled weekly working time ranging from 38 hours and 28 minutes for companies with more than 1,000 employees to 39 hours and 24 minutes for companies with 30-99 employees.

The hours actually worked are referred to as 'total actual hours worked' and, of those, the hours worked within the scheduled working hours laid down by the company are referred to as 'scheduled working hours' and any additional hours worked are referred to as 'non-scheduled working hours.' Working hours are also covered by the abovementioned Monthly Labour Survey. According to this survey (which does not differentiate between full- and part-time workers), the monthly average for 'total actual hours worked' in 2000 was 154.4 hours (x 12 months = 1,853 hours), an increase of 0.7% over the previous year. Of these, the 'scheduled working hours' accounted for an average of 144.6 hours per month, a 0.5% increase over 1999 partly because 2000 was a leap year. The average monthly 'non-scheduled working hours' were 9.8 hours, an increase of 3.6% over the previous year – the first increase in three years, reflecting a relatively favorable trend in production activity.

According to the calculations of the Ministry of Health, Labour and Welfare, in 1999 the annual total actual hours worked (for manufacturing industry production workers) were almost the same in Japan, the USA and the UK (1,942 hours, 1,991 hours and 1,902 hours respectively) but showed considerable disparity with France (1,672 hours (1998)) and Germany (1,517 hours (1997)).

Job security, training and skill development

Stability of employment and skill development are important matters for both labour and management but, in terms of collective labour-management relations, since they are subject to discussion at the individual company level, there is no systematic data available. However, it is possible to present some related data here.

In Japanese companies, communication between labour and management takes various forms, including, in many cases, a labour-management consultative body. The Survey of Labour-Management Communication which is conducted once every five years by the Ministry of Health, Labour and Welfare and covers private-sector establishments with more than 30 employees gives an overview of the situation. The most recent survey was conducted in July 1999. According to this survey, overall 41.8% of establishments had a labour-management consultative body and in establishments with more than 50 employees the figure was 51.0%.

Of such consultative bodies, 73.3% include 'temporary lay-off, workforce rationalisation and dismissal' as matters for discussion. This in turn can be broken down into a considerable number which treat such matters as 'matters for explanation' (16.4%), 'matters for consultation' (49.2%) or 'matters for agreement' (23.0%). Some 58.2% of establishments treat 'education and training plans' as matters for discussion and of these, 48.8% regard them as 'matters for explanation', a high 22.7% as 'matters for exchange of opinions' and just under 30% as 'matters for consultation' or 'matters for agreement'.

Regarding stability of employment, while dismissal by the employer for purely economic reasons is not generally countenanced, there is no formal regulation within Japanese labour law that restricts such kinds of dismissal. However, the accumulation of legal precedents has seen the establishment of the legal principle that dismissal without a rational reason is invalid. Whether the reason is accepted as rational or not is determined on the basis of the following four points:

  1. whether personnel cuts are accepted as necessary;
  2. whether every effort has been made to avoid dismissals;
  3. whether those who are to be dismissed have been selected on an objective basis; and
  4. whether there has been explanation or consultation with the workforce.

In general, as a result of such legal precedents and principles, dismissals are handled cautiously.

With continuing poor economic conditions, the number of companies engaged in restructuring and rationalisation of the workforce is increasing and even those companies which in the past strongly supported employment stability for regular workers are beginning to show signs of a change of direction.

Legislative developments

There have been a number of major revisions of the law in recent times in response to changing socio-economic conditions (legal changes relating to equal opportunities are covered under 'Equal opportunities and diversity policies' below).

In April 1999, several important provisions of the Labour Standards Law were amended and came into force. The main changes were as follows.

  1. In the past, in the case of a fixed term of employment, in principle the period of employment was limited to a maximum of one year but, with respect to certain positions such as research positions, the regulations were relaxed and the maximum extended to three years.
  2. The scope of the working conditions which must be specified in the employment contract was expanded to include the period of the contract, working hours and matters relating to retirement in addition to wages.
  3. In the case of specialist work such as research or planning, a 'discretionary work system' was introduced on the condition that it was subject to labour-management consultation. The number of working hours for such workers – who have considerable discretion in the execution of their work and distribution of their working time – may thus be set by labour-management agreement.
  4. A system of advice or guidance by national labour administration bodies was introduced.

While the content of changes 1) and 2) is quite limited, nevertheless they represent the first steps towards revising the legal framework relating to employment contracts that has been in place for more than 50 years. Change 3) represents the first signs of change in provisions relating to working conditions that, in the past, made no distinction between blue-collar and white-collar workers.

In December 1999, two major amendments relating to the adjustment of demand and supply in the labour market came into force. One was the Employment Security Law. This involved the deregulation of private employment agencies and the adoption of regulations relating to the protection of workers including, for example, the handling of personal information by such agencies. These changes occurred in response to pressures generated by structural change in the labour market and the adoption of International Labour Organisation (ILO) Convention No.181 (Convention on Private Employment Agencies) adopted. One of the main features of the deregulation of private employment agencies was the change from a 'positive list' to a 'negative list.' That is, whereas previously there was a list specifying the occupations which fee-charging private employment agencies could handle (positive list), after the revision of the Law, private agencies are in principle free to handle all occupations except those where there is considered to be a problem of protection of workers, such as harbour transport work or construction work (negative list). The result was that the scope of the business of fee-charging private employment agencies has been expanded enormously.

The other change was the amendment of the Worker Dispatching Law (the Law for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers). 'Worker dispatching business' is the term used in Japan to refer to temporary work agencies. The background to the amendment of this law was basically the same as the Employment Security Law. The amendment changed the way in which worker dispatch business was specified, from a positive to a negative list, and consequently the scope of business has been greatly expanded. Together with this deregulation, a ranges of provisions was put in place to ensure appropriate conditions of employment for dispatched workers. These included limiting the period of continuous employment for dispatched workers in the same job to a maximum of one year and requiring firms which have employed a dispatched worker on a continuous basis for one year, to make every effort to give preference to such a person when recruiting.

In October 2000, the revised Older Person's Employment Stabilisation Law come into force and, while the retirement age in most companies is 60 years, the law provided that employers should make an effort to provide employment for workers in their early 60s. The reason for these changes was the rapid ageing of society and the gradual raising of the age of eligibility for the old-age pension from 60 to 65 years.

There were some other major revisions of the law in 2000 that will come into force in 2001 and beyond. First is the amendment of the Employment Insurance Law so that the period for payment of unemployment benefits will vary according to the reason for resigning. That is, where a worker simply resigns for personal convenience or where the timing of old-age termination or retirement is known and it is possible to make preparations in advance, the period of eligibility for payment of unemployment benefits will be short but where there is a valid reason for termination or resignation, the period of payment will be longer.

Another change was the enactment of a law concerning the continuation of employment contracts following the reorganisation of a company into separate organisations. This law provides that, in cases where the contracts of workers who are engaged in work affected by the restructuring are not carried over, those workers can lodge an objection and have the employment contract continued.

The organisation and role of the social partners

The Ministry of Health, Labour and Welfare's Basic Survey of Labour Unions gives an overview of the situation of trade union organisations. As of June 2000, there were 11,539,000 union members in Japan, a decline of 286,000 or 2.4% from the previous year. These figures show a continuing, gradual decline in union membership over the long term. The proportion of union members in the total number of employed persons, or estimated unionisation rate, was 21.5%, a 0.7 point decrease from the previous year.

One of the reasons often given for the decline in the unionisation rate is that in the past unions concentrated their attention on 'regular' employees and have failed to adjust to the diversification of employment patterns towards more part-time and other 'non-regular' forms of employment. For example, if we look at the organisation of part-time workers, there are 260,000 union members, an estimated unionisation rate of only 2.6%.

Turning to the membership of the major trade union federations: Rengo had 7,173,000 members (a decrease of 161,000 from the previous year); the National Confederation of Trade Unions (Zenroren) had 802,000 members (a decrease of 25,000); and the National Trade Union Council (Zenrokyo) had 258,000 members (a decrease of 7,000).

As national centres, Rengo and Nikkeiren represent the interests of the workers' and employers' sides. As well as disseminating information, they undertake a wide range of survey and research activities. Accordingly, the Rengo white paper and the Report of the Nikkeiren research committee on labour problems which are issued just prior to Shunto each year attract considerable attention as the major representations of the respective positions. If we take the example of wage increases, whereas employers maintain that wage increases should be kept within the bounds of productivity increases and stress the importance of managing total labour costs, unions maintain that it is necessary to break through such limitations and pursue general economic recovery by increasing consumption. Similarly, with respect to the management of human resources, employers emphasise the importance of the 'best mix' of diversified forms of employment while unions are most concerned about the resulting increase in instability of employment.

In September 2000, Nikkeiren and the Japan Federation of Economic Organisations (Keidanren) reached an agreement on a merger and are now preparing for the emergence of the new organisation no later than May 2002.

Equal opportunities and diversity policies

In April 1999, the Law concerning the Promotion and Equal Opportunity and Treatment between Men and Women in Employment was amended. As a result, the obligations of employers with respect to equality of opportunity for men and women were strengthened and regulations relating to the prevention of sexual harassment in the workplace were put in place. At the same time, the Labour Standards Law was amended and regulations preventing the employment of women for long hours were abolished.

Equality and related issues are dealt with in enterprise-level collective bargaining and in negotiations within establishment-level labour-management consultation organisations. According to a Ministry of Health, Labour and Welfare survey (Japanese labor unions today II – survey results on collective bargaining and industrial disputes, 1998 edition), equal treatment between men and women features in negotiations within labour-management consultation organisations in 24.6% of cases, while it features in collective bargaining in 9.7% of cases where a labour-management consultation organisation exists, and in 14.0% of cases where no such organisation exists. The equivalent figures for negotiations over childcare and family leave are 31.9%, 23.3% and 25.7% respectively.

Industrial action

The Statistical Survey of Labour Disputes, issued each year by the Ministry of Health, Labour and Welfare, provides an overview of trends in labour disputes. According to the 1999 survey (the most recent one available), there were 1,102 labour disputes in 1999, in which a total of 1.134 million workers participated. Compared with the previous year, the number of disputes decreased by 62 (5.3%) and the total number of participants by 52,000 (4.4%). In 1999, there were 419 disputes which involved strike action and in which 106,000 workers participated. The number of working days lost was 87,000. Compared with the previous year, this represents a decrease of 107 strikes (20.3%), 59,000 participants (35.8%) and 14,000 working days lost (14.2%).

Looking at the disputes in terms of the major demands made, we find that wage increases were the largest single item at 385 cases (34.9%), followed by non-regular wage payments (bonuses) 212 cases (19.2%), 'opposition to dismissal and reinstatement of dismissed workers' 208 cases (18.9%). A comparison of these figures with statistics for 1998 shows that in 1999, there were seven fewer disputes, 66 fewer disputes over bonuses, and 32 more disputes over dismissals or the reinstatement of dismissed workers. The increase in disputes involving dismissals or reinstatements was particularly marked.

Examining the number of disputes involving strike action according to affiliation with one of the three leading union federations, we find that Rengo was involved in 209 disputes with 48,000 participants and 16,000 working days lost. The figures for Zenroren and Zenrokyo were 120 disputes, 39,000 participants, and 8,000 workdays lost, and for 28, 1,000, and 0 respectively.

New forms of work

Employment patterns continue to diversify over the mid- to-long term. In February each year, the Special Labour Force Survey is issued by the Statistical Bureau of the Management and Coordination Agency. According to this survey, the proportion of employed persons (excluding those in managerial positions) who are 'regular' employees declined from 80.2% to 72.8% between 1991 and 2001. Conversely, the percentage of part-time workers increased from 11.5% to 15.4%, and the percentage of casual workers (called arubaito in Japanese) from 4.7% to 7.6%.

Even among regular employees, the numbers who are working non-traditional schedules is increasing. For example, the numbers working under a flextime system increased gradually from 4.8% in 1990 to 8.1% in 1999. This percentage is higher (13.6%) in large corporations employing more than 1,000 persons; that is, one in eight workers in such firms is working flextime.

Personnel practices are also becoming increasingly diversified. More than 90% of corporations with 300 or more employees have a personnel evaluation system in place. Quite a large proportion of companies, particularly large corporations, have introduced new personnel management systems such as self-evaluation by employees, publicising of job openings in-house and 'multi-track' personnel systems.

On the other hand, the number of workers engaged in telecommuting is also increasing. While it is very difficult to collect systematic data on telecommuting, there are estimates of those engaged in various forms of telecommuting. This includes 1.13 million who are working at home, 110,000 working in satellite offices, and 950,000 involved in 'mobile work', that is work using mobile equipment. This does not necessarily mean that they spend the entire working week telecommuting, but the number of workers engaged in these forms of work is expected to increase in the future.

These changes are an indication that the former 'group-based' employment contracts under which all workers shared common conditions will be increasingly replaced by individual contracts. What adaptation and change this will require in existing patterns of labour-management relations can be expected to become the subject of considerable debate.

As mentioned above (under 'Legislative developments'), there have recently been a number of changes in the law governing various forms of 'atypical' employment, such as fixed-term contracts and temporary work agencies ('worker dispatching businesses').

Other developments

The realisation that different approaches to IT is one of the factors behind the stagnation of the Japanese economy and the buoyancy of the US economy has generated a tremendous amount of interest in IT. The Mori administration's positive stance towards IT has generated further interest. However, all technological change has a positive and negative side so, as IT technology develops, there will be an increasing need for objective research, and debate about its potential effects on work and employment will be required.

Outlook

The Mori administration came to an end in April 2001, when Koizumi Jun'ichiro formed his cabinet. Mr Koizumi was voted president of the LDP and was then elected Prime Minister by a vote in the Diet. Therefore, Mr Koizumi's administration has not been the subject of criticism, as Prime Minister Mori's was. Moreover, at the time of writing (May 2001), Mr Koizumi's administration was still enjoying a honeymoon period with the public, partly because his cabinet appointments were not fettered by the party political considerations of the past and thus had a certain air of freshness. The Prime Minister has taken a strongly reformist policy stance characterised by the slogan 'no-holds-barred structural reform'. However, reform is inevitably painful. So the prevailing view is that a comprehensive safety net will be required to assist those who suffer as a result of the reform process.

The implementation of reforms and the provision of a safety net will, of course, have a direct impact on labour issues so it will be necessary to monitor the process of reform closely. It is impossible to predict whether the outcome will be good or bad, but the commitment to reforms seems to promise new hope for the future.

Yutaka Asao, Japan Institute of Labour

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