Globalization and Greater Flexibility in the Japanese Labor Market: Exploring the Macro–Micro Link

ABSTRACT

The author explores the missing links between globalization and greater flexibility in the Japanese labor market based on review of literature and available evidence. Understanding Japan’s responses to globalization requires a nuanced approach, which accounts for its historical trajectory and social-institutional context. Along with globalization, Japan is experiencing a greater infusion of foreign capital, and an increasing presence of foreign firms. These foreign firms bring human resource practices that are more market driven and less socially embedded compared to the status quo. The diverging human resources practices of foreign firms have spillover effects that may destabilize the Japanese employment system in the long run.

KEYWORDS:

• globalization
• foreign direct investment
• foreign-owned firms
• human capital
• labor market flexibility

Notes

1. It should be noted here that flexibility is a demand-side expression. From the employers’ perspective, flexibility is desirable because it allows them to adjust employment levels in response to demand fluctuations. Brand (2007) refers to labor market flexibility as “a euphemism for removing (or restricting) such labor market ‘distortions’ as trade unions and minimum wage laws and, in brief, subjecting workers to the dictates of supply and demand” (p. 70). From the workers’ perspective, flexibility is undesirable because it signals an erosion of job security. Indeed flexibility from the demand side and insecurity on the supply side are coterminous. I shall use these expressions interchangeably depending on the discussion.

2. On average, part-time employment as percentage share of total employment, expanded from 11.6% to 16.5% between 1995 and 2012 across the OECD member states (OECD, 2012).

3. See Moriguchi and Ono (2006) for long-term historical trends in lifetime employment.

4. Estimations of gravity models that take into account factors such as economic size, geographic distance, and natural endowments reveal that Japan is indeed an outlier in inward FDI. For further discussion of why FDI in Japan remains so low, see, for example, Paprzycki and Fukao (2008) and Weinstein (1996).

5. Returning to one’s previous domestic employer became more commonplace especially following the Lehman shock of 2008 (Ono, 2012). A large number of foreign firms withdrew or downsized considerably following the shock, at which point many finance professionals sought shelter with their previous employers.

6. For example, in some extreme cases, the opposition may argue that increased competition may disturb social harmony and lead to a “high-crime society” such as the United States (Yashiro, 1998; cited in Olcott, 2009).

7. For an illustrative example that documents the importance of the historical and institutional context, see Stovel, Savage, and Bearman (1996) who document the transformation of employment systems in a large British bank from 1890 to 1970.

8. Recruitment Brands Survey administered by Recruit Works Institute (various years) shows that the foreign firms are gaining more popularity and recognition as potential places to work among Japanese university graduates. An article in the Financial Times explains that Merrill Lynch Japan received more than 3,500 applications for 73 job openings in 1999 (Tett & Nakamae, 1999). John Sievwright, then the president of Merrill Lynch, is quoted as follows: “2 years ago, if a Japanese graduate said they wanted to work at Merrill Lynch their mother would probably be shocked – what would she tell the neighbors? People had never heard of Merrill Lynch… But now we are choosing from an incredible talent pool” (Tett & Nakamae, 1999, p. 2).