Japan: Rethinking Lifetime Employment

The Democratic Party of Japan rode to victory in a landmark election on Aug. 30 by advancing an ambitious agenda, which includes reassessing Tokyo's relationship with Washington and playing a greater role in international climate talks. But there is one particular plank in its platform that managers—and not just those in Japan—would be wise to reflect upon, just as Peter Drucker did.

Among the DPJ's aims is banning the hiring of temporary workers on factory floors—a nod to the unease that many people in Japan are feeling as the country's decades-old model of "lifetime employment" continues to dissolve (and its labor practices look more and more like those of the U.S.).

Exactly how many Japanese ever really enjoyed the reliability and comfort of lifetime employment is difficult to say. Slicing the statistics and interpreting a series of changes to Japanese employment law in different ways, scholars have come up with figures as low as 20% of the workforce and as high as 80%. What is indisputable, though, is that the long-term employment security enjoyed by many in Japan (many men, that is) has been a cornerstone of the country's corporate culture and a symbol of its cohesion as a society.

"Japan's success—and there is no precedent for it in history—very largely rested on organized immobility—the immobility of 'lifetime employment,'" asserted Drucker, who first visited Japan in 1959 and was among the earliest observers to predict the nation's rise as a world economic power.

Promoting Teamwork Indeed, the old approach certainly has its virtues, including the fostering of allegiance among employees—not a bad thing when you're trying to promote teamwork throughout the organization. Edward Lincoln, a professor at New York University and director of its Center for Japan-U.S. Business & Economic Studies, believes that Japanese workers may also have eagerly embraced technological change over the years because they didn't worry about a machine casting them to the streets. "They knew they'd get moved into another job elsewhere in the company," he says.

Drucker, too, thought that there was much to learn from the Japanese. In a seminal 1971 piece in Harvard Business Review, he praised the country's managers for the deliberate manner in which they puzzled through decisions, lauded their commitment to continuous worker training, and found lessons in the way they mentored younger employees.

Drucker also touted the concept of lifetime employment, which he deemed far less rigid than many assumed. That was in part, he pointed out, because Japanese workers faced mandatory retirement (then at age 55), making "lifetime" something of a misnomer.

What's more, Drucker wrote, companies in Japan never hesitated to lay off people when business got bad. "Yet they can do so in such a fashion that the employees who need incomes the most are fully protected," he explained. "The burden of adjustment is taken by those who can afford it and who have alternate incomes to fall back on."

Looking Beyond Tradition Still, despite all this, Drucker over time reached the same conclusion that many Japanese executives have: Thriving in today's global economy requires more flexibility in hiring people and letting them go than the traditional system has allowed.

And so it is that, since the late 1990s, most big Japanese corporations have restructured themselves, moving from "unwieldy goliaths to nimble competitors," in the words of the University of California at San Diego's Ulrike Schaede. Among the steps they've taken has been to increase the use of low-cost part-timers, contract workers, and temporary staff. This group now makes up more than a third of Japan's labor force.

The trend isn't being driven by industry alone. As more people shift from manual work to knowledge work, some employees have come to relish the ability to bounce from job to job (presumably snatching ever better offers along the way). In the U.S., author Bruce Tulgan has dubbed this phenomenon "just-in-time loyalty."

But what worried Drucker—and what the Japanese election underscores—is that the flip side of mobility is instability, especially for those workers lacking the skills and education to be in high demand. In these cases, Drucker suggested, employers have a special obligation to help those they dismiss find their way through the dislocation and land new positions.

Helping "Redundant" Workers This "requires active and energetic attempts at retraining for specific new job opportunities," Drucker wrote. "It requires that the employer takes responsibility for placing redundant employees in new jobs." This was advice, Drucker noted, that he dispensed both in Japan and in the U.S.

"I very much hope," he added, "that Japan will find a solution that preserves the social stability, the community—and the social harmony—that lifetime employment provided, and yet creates the mobility that knowledge work and knowledge workers must have."

It's far from clear that the DPJ has found the right answer. But it has touched on a subject—the proper shape of the social contract between employer and employee in the 21st century—that merits considerably more attention, regardless of which side of the Pacific we happen to be on.

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