Japanese Employ Creative Means To Keep Unemployment Low
Official subsidies and cultural taboo keep idle workers on payrolls
IF the Japanese economy worked like that in the United States, the stock brokers at Cosmo Securities Company would be looking for new jobs this week.
The company had a brush with bankruptcy last Friday, but instead of going under and laying off hundreds of employees, Cosmo was rescued by a peculiar safety net in Japan that has helped to keep unemployment at a level far below that in the West.
Cosmo was saved by Japan's Finance Ministry and a creditor, Daiwa Bank, despite the company's confession that it had defrauded $700 million from investors. "It's important to rescue Cosmo Securities," says Finance Minister Hirohisa Fujii, "to protect Cosmo's employees at the time of an economic slump."
Such rescue efforts, combined with a near-sacred creed among big Japanese corporations to avoid layoffs at all costs, have helped to keep Japan's joblessness low - at 2.5 percent in June - despite the country's most prolonged recession since World War II. In the past few months, however, as the recession has entered its third year and a strengthening yen has hit exporters hard, corporations are straining for creative ways to maintain Japan's famed lifetime employment system.
As in previous recessions, such as in 1974-75 and 1986-87 when unemployment was worse, many workers this time are being relegated to the so-called "in-company unemployed." They are asked to stay home (with partial pay) or are assigned to the "window tribe," sitting idly or doing little, perhaps staring out a window.
An estimated 1 million or more of Japan's 66 million workers are being kept on payrolls in such an idle status. If the economy does not pick up soon, these unproductive workers could be a bulging burden that could burst into Western-style joblessness.
"About 300,000 to 400,000 of that group may need to be fired in the next half year," says Keio University labor economist Haruo Shimada.
Few of the inactive employees complain. Being laid off in Japan carries a social stigma. Japanese refer to it as "cutting off their heads." And Japanese firms, with their usual deep pockets and long-term perspective, want to keep workers and avoid the cost of recruiting and training new workers later.
Six months ago, the Labor Ministry pulled top business leaders into a meeting for the first time since 1975 to "advise" them not to fire employees. Two months ago, in an upbeat report, the ministry predicted the job-for-life system would be maintained.
But with economic recovery elusive and chances slim of Japan ever returning to 5-7 percent growth, many firms are reaching the breaking point on cash and credit available to keep workers, says Kazuo Nukazawa, managing director of Japan's leading business group, Keidanren.
If one company is forced to start layoffs and break a cultural barrier, others may quickly follow. Some economists predict that Japan's unemployment would then shoot up to 6 to 8 percent.
To help keep workers on the payrolls, the Labor Ministry has provided "employment adjustment subsidies." So far, 168 industries have qualified surpassing the peak of 165 in 1987.
The government plans to spend $750 million on such subsidies this year.
Only about 1 percent of manufacturing companies have started to cut jobs so far this calendar year, according to the Labor Ministry, although it predicts "serious employment adjustments," such as dismissals, in retail and wholesale industries.
Most companies have cut back on their work force through attrition and by asking subsidiaries to take workers temporarily. Fujitsu, for instance, Japan's largest computer maker, plans to shed 6,000 employees largely by dispatching employees to subordinate firms.
Recruitment of university graduates will fall by one-third next spring, according to a Mainichi newspaper survey. And female graduates will be particularly hurt. Only one in 10 female graduates will be offered a job, down from one in five this year, based on a survey by Recruit Research Co. One out of four males will land a job compared to one out of three this year.
Many companies are reducing labor costs by cutting back on overtime, forcing workers to take more vacation, and by starting performance reviews that tie wages to merit - something new in Japan.
Employers in export-oriented industries are suggesting that wages be cut, after decades of steadily rising incomes in Japan. In fact, a few companies plan to offer labor unions the choice between jobs and wage cuts.
"It is too early to say that wages will definitely be cut, but it is obvious that wages have peaked," says Takeshi Nagano, chairman of the Japan Federation of Employers' Association.
The government predicts the economy will recover by the end of the year, easing the labor crunch, although some private economists say the pickup will not come until late 1994.
If companies can wait that long, they will then face the ironic prospect of a labor shortage due to Japan's declining population. Even with slow economic growth, Japan will face a shortfall of 6.21 million workers for the rest of the century, according to LTCB Research Institute Inc.