If a company discharges a worker unreasonably, or a worker terminates such a permanent relationship by what is thought to be his own selfish demand, the society as a whole attaches a particular stigma to the event. The company will lose its reputation and will have difficulty recruiting bright graduates from good schools. The worker will have a very hard time finding a good, stable job with any reputable company other than a foreign (non-Japanese) one. Unless he is remarkably talented, he is likely to become a refugee in the Japanese labor market.
The relationship between the company and the worker is not simply a function of the economic convenience of the two parties. The worker, whether a laborer or a manager, may not leave the company at his convenience for another position even if the departure is to his economic advantage. He is bound by on to remain in the company group. Loyalty to the group, with an interchange of responsibilities—a system of shared obligation—is the basis of employment. This system goes considerably beyond the written regulations and the Labor Standards Act which officially govern the industrial society.
Lifetime employment offers many advantages to the company. For one thing, it guarantees a steady labor force, which the company can then educate on a long-range plan and, more important, receive a benefit from that education in return. In order to cast workers in the right mold and achieve the desired quality, management brings in large batches of untrained graduates from high schools and universities each year rather than picking up trained people in the marketplace for specific jobs. These fresh workers are then indoctrinated to be loyal company members and are given the necessary training on the job and off the job throughout their careers. When a man stays with one company, he naturally becomes well accustomed to his job, learns to value it highly, and becomes well versed in company activities. Generally speaking, every member gets to be a kind of expert on company operations.
Of course, there are disadvantages as well. The most troublesome is that management almost always has to maintain a surplus labor force, since it is impossible to keep all employees up to date on the rapid economic and technological changes of the world. Inefficient use of the time and energy of the surplus workers is inevitable and leads to a conservative attitude toward rapid change on the part of the workers.
In order to reduce the surplus labor force, management will often transfer workers to its subcontracting firms or subsidiary companies. But in acute cases, such as the oil crises in the past, it asks for volunteers to leave the company. Temporary layoffs can be conducted only in the form of "volunteering," with the payment of a special dismissal allowance. However, there is a danger that the better workers will volunteer to leave and that the incompetent ones, who cannot get jobs easily, will prefer to stay on. Thus the success of personnel management under the lifetime employment system largely depends on how the company can manage redundancy.
First of all, the selection of employees at entrance must be carried out very carefully. Errors should be minimized in every way. Overtime work is required rather regularly in smaller firms, for it works as a buffer to the fluctuating workload. Temporary workers, part-timers, and arubaito (a term derived from the German word "Arbeit," indicating the lowest status of temporary workers in Japan), are employed in the regular work schedule but not treated as lifetime employees. All in all, personnel management is so elaborate as to strengthen the strong points and cover the weak points of the system. These are described in detail later in the chapter.
Seniority-Based Promotion (Hierarchy)
The lifetime employment system would not be so successful if it did not have a strong partner to sustain it. This partner has been the seniority-based promotion system.
Since Japanese people are so group-oriented, they are eager to be on a par with others. All workers are employed on "on-tract" terms, so they would not be happy if they were unreasonably differentiated in rewards. They do not consider their contributions to be rewarded solely in proportion to their ability and performance—the contractual terms of the West. Rather, loyalty is their most important offering and is given highest value by the society.
However, management needed to find some way to make ranks in wages and status in order to maintain the vertical society. So it chose one indisputable criterion: age. The wage and salary administration program was operated by age difference, which is also, conceivably, equivalent to length of service under the system of lifetime employment. Management found this to be the best way to maintain harmony (wa) among the workforce, because nobody could complain about his age.
It is almost impossible to assess an individual's ability and performance in the Japanese workplace, since no job standard is allocated to a worker and the work is done by group hands. Nevertheless, to be fair to employees, management needed to consider the competence of individual workers in making its assessment, so it adopted another objective criterion: the level of education of each employee. The education of a worker is, in a way, a rough indication of his ability. The starting salaries of high school and university graduates are different even if the workers are placed initially in the same jobs. Also, the graduates of first-rate universities are ranked higher than graduates of second-rate universities. Therefore, the competitive society is now called the "credential" society. People need university credentials to enter the industrial world and move up in the pyramid. Thus the seniority system is now operated on three criteria: age, length of service, and school credentials.
People may enter a business firm or government service at different posts leading to different careers, but each career consists of a sort of age escalator of pay and status on which workers advance together. Blue-collar workers, for example, are on a relatively low escalator of pay and status, while white-collar elites who have qualified by higher education and a competitive entrance examination are on a high escalator that may lead all the way to executive posts. Even so, within each category, status as well as pay is determined primarily by age and length of service.
This seniority system supports lifetime employment, because it rewards workers according to their length of stay in the company. Generally, as a worker grows older he needs more money to maintain his livelihood, so to obtain a higher wage he stays longer with the company. The longer the worker extends his service, the more effective the lifetime employment system becomes. By the same token, lifetime employment reinforces the seniority system in that it regulates the hierarchical order of the organizational pyramid and satisfies the worker's need to feel equal with others. Both systems are much like the two wheels of a cart: each cannot run without the other. This combination is an extremely effective means of utilizing human resources by voluntary commitment rather than by constraint. With the security "offered by lifetime employment and the benefits that accrue to the worker more or less automatically through the seniority system, Japanese industry has been able to retain the loyalty and energetic service of its employees and to pacify the unions in a way envied by the West.
There are, of course, weak points in the seniority system too. During the 1960s, when Japanese industry was achieving rapid economic development and was continuing to expand, it faced a critical shortage of fresh young workers to aid in its growth. Companies went into fierce competition to secure new workers. As a result, every company tried to offer attractive terms to the younger generation, and the starting salaries of new workers rose year after year. As already pointed out, the pay scale in the seniority system is set up in a hierarchical order which matches the pyramidal structure of the organization itself. When salaries and wages are increased at the bottom, the whole pay scale is automatically augmented. This imposes a heavy burden on the company finances, but the personnel expenditure can be covered as long as economic expansion is achieved and productivity continues to rise. With the sudden oil crisis, however, Japan's economic development was stunted and salaries and wages threatened to outstrip company revenues. As a result, companies had to devise some way to lay off employees.