Vol.31-No.08 August 1,1992
Takashi Kawakita
Hosei University
Special Researcher
The Japan Institute of Labour
Are Wages for Small Business Employees Exceptionally Low?
Conventional views are that wages in Japan's smaller firms are exceptionally low as compared to those large ones and that large companies alone benefit from what is called Japanese-style human resource management and, for example, high wages.
Indeed enough with basic monthly wages in firms with 500 and more employees as 100, they are 80 for enterprises with 100-499 employees, 69 for those with 30-99 employees and 65 for those with 5-29 employees (Ministry of Labour, Monthly Labor Survey. September 1991).
However, there is a considerably wide gap in ratio of female workers between large corporations and smaller ones. Let us look at wage difference for male workers. With wages of male workers at enterprises with 500 and more employees as 100, those are 88 (100-499 employees), 80 (30-99 employees) and 79 (6-29 employees). The gap now is less great.
Furthermore, there is a difference in wages for male workers by educational background in accordance with company size. By firm size, taking as 100 basic wages for male with college degrees at firms with 1000 and more employees, those stand at 86 for medium-sized firms (100-999 employees) and 76 for smaller firms (10-99 employees). And, when basic wages for male workers with high school background at large firms are taken as 100, these are 85 for medium-sized firms and 77 for small-scale firms (1990 Basic Survey on Wage Structure).
Thus, controlling for the factor of educational background, you can get less narrow gap between basic wages of larger and smaller companies.
Japanese wages are closely corelated with length of service. If average length of service for workers at smaller firms are fewer than those for workers at large companies, the mean value of wages will be lower. In order to see if there are wage differentials between workers at several scales of firms where their length of service are the same, let us take up those "standard" workers who have not changed their employers at the same company since leaving school.
Taking as 100 basic wages for standard male workers with high school diplomas and in the 40-44 age group at large firms, they are 90 for middle-ranking ones and 88 for smaller firms. Basic wages for standard male workers with college degrees and aged between 40 and 44 are 84 for medium-sized firms and 80 for small firms. The gap is smaller still.
Many of those firms in the finance and insurance sector which offer high wages are large. To eliminate this effects, let us look only at the manufacturing industry. Are there wage gaps according to firm size for male production workers (40-44 years old and high school degree) in the manufacturing sector? With a wage for those in large firms as 100, it is 96 for those in middle-ranking firms and 83 for those in small-sized firms. Now, the disparity becomes even smaller.
The dispersion must be taken into account. When you talk about the dual structure, you mean wages for all workers in smaller-scale companies are always be lower than those for workers in large companies. However, this is no longer true when the dispersion between workers is taken into consideration.
As shown in the Table at least a quarter of workers at large firms receive less wages than a quarter of workers at small firms. We have, yes, the graduation but do not have the polarization.
Poor Working Conditions at Firms without Labor Unions?
Companies with labor unions provide better working conditions; those without labor unions have poor working conditions; thus we have the dual structure. Is this true?
In Japan, larger corporations boost wages with considerations taken into their cash resources. Smaller-scale corporations do so with more emphasis on securing their workforce.
When the expanding economy triggers a labor shortage, smaller firms in many cases tend to raise wages to assure their workers (See A Ministry of Labour Survey on Wage Increase). The smaller the company size, the more often do they increase wages by reference to those offered by businesses located in the same areas. In fact, there has been virtually no gap in the annual wage increase rate between major firms and smaller ones for those twenty years.
True, reports are often published announcing working conditions are better at firms with labor unions than at those without. But these only show the difference between the large and the smaller-scale companies. Practically no researches show that with such factors as firm size, industry, job category and length of service controlled for, unionized firms provide better working condtions than non-unionized ones.
Many Japanese smaller firms have labor-management committees and suggestion programs even though they have no labor unions. According to the 1988 Survey on Labor-Management Communication conducted by the Ministry of Labour, 50.5 percent of smaller firms with 10-99 employees have labor-management consultation organs. 71.7 percent held workshop meeting and 39 percent suggestion programs. Of these with workshop meetings, 76.2 percent of meetings discuss daily business operations and 39.7 percent talk about corporate policy, production schedules and sales plans.
Whether workers' discontent at non-unionized firms can be conveyed to the employer depends in Japanese companies. The They-We relationship between superiors and subordinates is hardly clear, and workers' grievances tend to be conveyed directly to the superiors. In the same survey mentioned above, 71.5 percent of the workers polled let their company know their dissatisfaction, if they have, through their immediate bosses and only 19.5 percent did so through labor unions.
Are Non-regular Employees the Under Class?
Other vulgar views argue that Japanese companies assure regular employees good working conditions, while they put non-regular employees under harsh labor conditions and that there is an evidently wide gap between the two categories of workers, thus constituting a layered labor market.
Do Japanese corporations really try to restrain rising labor costs by increasing the number of non-regular workers whose costs are lower? A 1990 Ministry of Labour Survey on Wage Increase found that only 1.7 percent of enterprises give top priority to "switching to hiring of part-time workers, subcontractors and peripheral workers" as measures against increased personnel costs resulting from wage hike. 63 percent listed "boosting sales and developing new products" as their top measures.
Thus, few enterprises want to increase the number of workers with low labor costs. 11.4 percent seek to "introduce and expand machinery equipment to downsize the workforce." This may affect the workers but not the non-regular workers alone. 3.3 percent of firms trying to "revise the wage system seek to restarin overall personnel costs.
Are the majority of temporary workers quickly dismissed? According to a 1990 Employment Trends Survey carried out by the Ministry of Labour, only 1.8 percent of males and 1.9 percent of females of temporary workers left their work to management decision. Fifty-four point six percent of the males and 65.4 percent of the females left their jobs at their own accord.
It is a fallacy to assume that non-regular workers concentrate in small-and medium-sized firms with poor working conditions. 26.6 percent of part-timers are employed by firms with 300 and more workers (Ministry of Labour, Employment Trends Survey, 1988).
Does the Internal Labor Market Exist in Large Companies Alone?
Whereas large corporations have an internal labor market with the intra-firm promotion and lifetime employment system, workers in smaller firms move from one small enterprise to another small one. They remain out of the closed labor market of large companies. Once workers leave a large firm, all they can do is move to smaller firms. This is a popular view of the dual-structured labor market.
Is the number of out-going workers small at larger companies and large at smaller firms? The 1990 Employment Trends Survey said that the percentage of job leaving (the proportion of separated workers to workers on the payroll) stood at 12.6 percent for large corporations with 1,000 and more employees. The rate was 15.2 percent for firms with 300-999 workers, 16.3 percent for those with 100-299 workers and 18.7 percent for those with 30-99 workers. The smaller the size of the company, the higher the rate of out-going. The rate, however, is not so high as to represent a "notable" gap between the firms.
Do those who change jobs always switch only to smaller companies than the previous firms? Looking at the above survey in which company size is divided into five different stages, 41.0 percent of workers who quit their jobs switched to larger firms, 31.9 percent moved to firms of the same size and only 27.1 percent changed to smaller corporations.
Thus the realities does not confirm the conventional view that Japaneses workers, once losing their employment, cannot find jobs at larger firms whose labor market is closed to the outside world and cannot help but join smaller companies and that therefore those who repeatedly change jobs are concentrated in smaller to tiny enterprises to form the under class of the labor market.
What about another traditional view that younger workers can switch to larger corporations but elderly people have no alternative but to change to smaller firms? In the same survey, 42.6 percent of 20-29 year-olds who changed jobs moved to larger companies, and 29.2 percent to smaller firms.
On the other hand, of workers between the ages of 45 and 54 , who switched their jobs, 37.2 percent changed to larger corporations and 28.4 percent to smaller firms. There is little difference between the two age brackets, and it is thus difficult to say that large firms close their doors to older persons.
Are Woman Workers Quickly Dismissed?
According to a traditional view of the dual-structured labor market, Japanese society is male-oriented and male workers are protected under Japanese-style management, while female workers are always victimized under the system.
What is the ratio of those female workers fired for managerial reasons to all female workers who left their jobs? The 1990 Employment Trends Survey revealed that a meager 4.0 percent of separated female workers left due to managerial reasons. Even if those who left work because of termination of their contract period are included, only 8.3 percent did so due to managerial reasons.
On the other hand, the percentage of separated male workers fired for reasons stood at 8.4 percent, larger percentage than for females. Including those who left their jobs because their contract period was terminated, the percentage shot up to 15.5 percent, again greater than that of female workers.
Including among separated workers are those who are transferred to in-group firms with their working conditions remaining substantially the same. With these workers excluded, only 3.2 percent of female left work due to corporate decisions.
Do Smaller-scale Firms Remain Small?
Japanese small-and medium-sized companies are subordinated to large firms and cannot grow larger despite their strenuous efforts. Therefore, those working for smaller firms lack independence and find nothing to work for. Is this true?
The erroneous image that all Japanese manufacturers are subcontractors must be abandoned. And even subcontracting companies tend to increase the number of customers and scatter their order receipts among these customers (MITI's Basic Survey Manufacturing Structure and Activity). Many venture businesses in the manufacturing sector are not affiliated with large companies. Rather many conduct information exchanges, technological tie-ups, sales tie-ups and research and development tie-ups with large companies on an equal footing (Survey by the Center for Fostering Research and Development Oriented Firms).
Smaller firms whose sales are growing are also witnessing a steady growth in employees. According to our survey which examined growing smaller-companies (Employment Information Center's Survey Report on Local Firms and Their Workforce, 1991), 68.1 percent of the growing smaller local corporations cited their growth strategy as the most important factor hiring qualified employees. 56.3 percent stressed "no relocation policy" as a favorable factor not found in large firms. Only 12.5 percent of employers replied that "unless we treat employees harshly, they will be indulgent." 76.9 consider "employees as family" and 65.1 percent said that they would "continue to employ their workers as long as possible."
Twenty to thirty years ago, some of today's large companies were smaller companies. There is no evidence whatsoever that such a state will no longer occur in the years to come. Despite the traditional view that once one enters a smaller firms, it is impossible to enjoy working conditions comparable favorably to those offered by a large company, many employers and workers in small companies make all-out efforts, working day and night, to make their companies larger.
Indeed, there are many small corporations which provide good working conditions which can stand by comparison with those offered by large businesses. To be sure, average smaller companies are inferior to large ones, particularly in terms of fringe benefits.
But buying two suits of the same size for two persons, one 180 cm tall and the other 140 cm tall, because they are an average of 160 cm tall, would be ruinous. Looking at the average only would make it unable to see diversified realities. Thus, you must not compare the average workers of one labor market structure, if any, to those of another and stop there. Still more, one should avoid regarding the unluckiest case as the most typical example many Marxist-oriented labor researchers and Japan bashers love.
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