Editorial: Rushing to abandon 'Japanese-style employment' could harm businesses

The Japan Business Federation, commonly known as Keidanren, has stated in its guidelines for 2020 wage bargaining that Japan's conventional framework for labor-management wage negotiations is out of touch with reality.

Under the current negotiation framework, firms generally follow decisions made in their respective industries in an organizational manner. But it appears Japan's largest business lobby is now raising questions about the very purpose of annual wage negotiations.

Keidanren also proposed that wage negotiations should be carried out solely by labor and management of individual companies, recommending that the annual labor talks be transformed into a platform where labor and management discuss possible reviews of "Japanese-style employment," which include features such as lifetime employment and a wage system based on seniority.

The latest guidelines suggest that Keidanren wants to increase Japan's international competitiveness by shifting its employment and wage systems into a format befitting the current age of financial digitalization and globalization. The organization says it would be ideal if Japan transitioned into "job-based employment" as seen in the United States and elsewhere, where workers' salaries and treatment differ based on their job assignments.

In 2018, Keidanren proposed that firms review their practice of blanket recruitment of new graduates as well as abolishment of rules regarding job hunting for companies, on the grounds that those practices adversely affect acquisition of highly skilled personnel.

Hiroaki Nakanishi, the current chairman of Keidanren, is executive chairman of Hitachi Ltd., a major Japanese electronics manufacturer which faces intense competition from its foreign counterparts and American information technology giants. The organization's seemingly rushed move to step away from Japanese-style employment mirrors Nakanishi's strong sense of crisis.

At the same time, annual wage negotiations, known as the "spring offensive" in Japan, still serve an important purpose of raising the level of wages in the country, including for those in non-regular, short-term contract employment. To eradicate wage gaps between employees of major corporations and small- to mid-sized businesses, it is essential that large companies belonging to Keidanren strive to avoid placing excessive pressure on their subcontractors to cut prices.

In wage negotiations in recent years, the government, which aims to break the hold of deflation on the Japanese economy, has urged management to raise wages. And since 2013, many workers have seen wage hikes around the 2%-level, including an across-the-board raise in their basic pay. However, "government-initiated" wage negotiations can only go so far. Japan is yet to see a positive growth cycle in which widespread wage hikes lead to active consumer spending.

Major companies have been enjoying record-level profits under the administration of Prime Minister Shinzo Abe, which has implemented generous measures for such firms including corporate tax cuts. Workers, on the other hand, are experiencing heavier financial burdens imposed by two sales tax hikes over the past six years.

The Japanese Trade Union Confederation, commonly known as Rengo, which represents labor, has criticized Keidanren's latest guidelines, saying that they major corporations. It is true that without a wage hike that matches the growing financial burden, people's living standards will decline, which will adversely affect Japan's economy.

To significantly review the employment and wage systems to match drastic changes in business conditions, it is essential to win workers' understanding. If firms rush to abandon the long-held Japanese-style employment system and workers take the move as a strategy by employers to avoid wage hikes, it could backfire and harm Japanese companies' competitiveness.