The OECD just came out with their 2006 Economic Survey of Japan, which generally says, Japan’s economy is doing pretty well at the moment, but the nation has to undertake serious steps in managing innovation and reducing inequality to keep up adequate growth for the next decade. The report closely examines the relatively new problem of income equality in Japan. Measures like relative poverty have nearly reached American levels after fifty years of enviably low disparity.
The OECD’s conclusions about the nature of income inequality seem to contradict Fujiwara Masahiko’s arguments in Dignity of a Nation: namely, the age old idea that lifetime employment helps reduce income disparity.
A lot of Nihonjinron writers like to associate Japan’s historically low Gini coefficient with Japan’s unique “lifetime employment” (終身雇用) system, where employees stay with the same company for their entire career. Fujiwara sees this as a key to social stability, claiming that merit-based promotion would cause destructive internal competition within companies. The OECD does back the claim that seniority-based pay — which goes hand in hand with lifetime employment — has helped limit the difference between employees of the same age in different companies. So on that point, the old belief may be true.
The problem is that the old lifetime employment system depends on a very rigid recruitment process (the so-called shuushoku katsudou), and even though young workers are no longer likely to stay around at one firm for their whole lives, they will still start their careers by passing through the very narrow gate of this process. Once within the company, the “regular employees” (正社員) acquired through the formal process will work side-by-side with “non-regular employees” (temps, those on yearly contracts) — but rewarded in completely different pay schemes. Non-regular workers make on average only 40% of the regular worker salaries, which the OECD says cannot be explained just through differences in productivity. And no matter how well the non-regulars perform, they will almost never be able to jump over to the “regular” career track. Participation in that initial recruitment drive now means everything for your future earnings and class status.
For the most part, the regular workers all come from top-notch four-year universities. Those without such credentials can’t get in the front door at recruitment, and even those with degrees who fail to “pledge” a first-tier company in their early 20s may never be able to get back on the mainline track. This creates what the OECD calls a “market dualism” — an elite track and a “non-regular” track coexisting without much chance of non-elite workers movin’ on up.
Why did this system not cause as much income inequality in the past? My guess is that companies hired more of their staff through the formal channels and outsourced work to other smaller firms with rigid employment ladders. Once the Bubble burst, these companies took less and less “formal” workers and used temps and non-regular hires to fill in the gaps at a low cost.
The OECD calls for less legal barriers to firing regular employees. These “Golden Boys/Girls” on the elite track can essentially never be fired, which is not true for their non-regular counterparts. If you get rid of the remnants of the old system and hire based on skill/merit alone, non-regular workers would be able to get hired at a decent pay scale and perhaps move up the career ladder at their companies. As it stands now, those who can ace placement tests at age 17 and look good in a cheap black suit at 21 are the only ones who can stay middle-class. The old traditional Japanese employment system now exacerbates the income inequality problem instead of solving it.