Special Topic

Vol.37-No.09 September 1,1998

The Labor Market and Career Development in the Small and Medium-size Service Sector

Astushi Sato
Senior Researcher
The Japan Institute of Labour

1.0 Introduction

This paper describes the labor market in the sector of small and medium-size firms¹⁾ in the service industry. Japanese-style employment practices are often described as involving long-term employment. However, such employment occurs mainly in the large-scale sector. However, the realities of the labor market relevant to Japan's small and medium-size service enterprises (which employ the majority of Japan's employees and in recent years have exhibited remarkable resilience in terms of employment) have not so far been very well studied. This paper consists of the following two parts. The first simply compares workers at Japan's small and medium-size enterprises with those at Japan's larger enterprises in order to identify what characterizes the labor force currently employed in smaller-scale service enterprises. The second part describes the labor market for small and medium-size services and the career development of workers, including their employers, of small and medium-size services while utilizing the outcome of a 1997 survey conducted by the Japan Institute of Labour (JIL)²⁾.

2.0 The Labor Market for Those Who Change Jobs

A breakdown of the labor force of people who have changed jobs by firm size reveals that 12.7 percent are employed at firms with 1,000 or more employees; 9.3 percent at firms with 300-999 employees; 15.6 percent at firms with 100-299 employees; 22.8 percent at firms with 30-99 employees; and 36.2 percent at firms with 5-29 employees. By sector, 0.1 percent are in mining; 14.2 percent are in construction; 21.0 percent are in manufacturing; 0.2 percent are in electricity, gas and heat supply; 9.0 percent are in telecommunications; 21.3 percent are in the wholesale and retail trade, and eating and drinking establishments; 3.1 percent are in finance and insurance; 1.1 percent are in real estate; and 29.8 percent are in services. This indicates that small and medium-size enterprises and services employ many of the people who have changed jobs (Ministry of Labour, Employment Trends Survey 1996)³⁾.

2.1 Job Changing and Tenure

Comparing workers at large enterprises with those at small and medium-size enterprises (Table 1), several points may be made. First, for male regular employees in nearly all age groups, the proportion of those who changed jobs was slightly less than 20 percent at large enterprises, but slightly more than 70 percent at small and medium-size service enterprises. As for the number of job changes, workers at smaller-scale service enterprises changed their jobs more often than did their counterparts at large enterprises. Second, regarding tenure for the same employer, employees have longer tenure at large enterprises and shorter periods of tenure at small and meium-size enterprises. Overall, it is fair to say that smaller-scale service enterprises have fewer workers on their payrolls who are likely to settle down.

These facts suggest workers in Japan's small and medium-size service enterprises may have a different labor market than their counterparts in Japan's larger firms. What career paths have those in the small and medium-size firms followed? What do they think about their working life in the years to come? These questions are considered below.

3.0 Proprietor's Career Path

Workers are the major actors in the labor market. One career option for some workers is to become their own independent boss. More than 90 percent of proprietors before becoming entrepreneurs were employed workers. About three-quarters are ex-employees of small and medium-size enterprises having 299 or fewer employees. Moreover, 47.6 percent said their last job was in the same industry as they are currently running their business, 40.2 percent said they were engaged in the same job as they presently perform as an entrepreneur. Thus, not a few developed their present know-how and skills in a business or job similar to that in which they are presently engaged.

How did they become entrepreneurs? The largest number (38.3 %) said they switched from being employed to establish their own business; 18.5 percent succeeded in a family business; 10.7 percent started their businesses as a related firm or a subsidiary tied to a parent company; 9.9 percent started their own businesses distinct from their family's business; and 9.5 percent were promoted within the firm or special corporation to head the operation. What motivated these entrepreneurs to run their own business? About 44.3 percent said they wanted to utilize more fully their own ability; 35.3 percent said they wanted to give full play to their skills and expertise; 17.7 percent noted they could earn more income. That factors involving self-realization exceeded economic considerations deserves much attention.

Table 1: Job Change Experiences and Tenure (for male regular employees)

Average age Previous change of job Number of job changes Years of continous employment with present employers

(Year) Yes No 1 2 3+

Large Enterprises (N=63)¹⁾ 38.9 19.0 80.8 66.9 19.9 13.2 15.2 (16.2)

Small and Medium-Size Enterprises (N=4774)²⁾ 38.8 71.0 29.0 43.0 23.8 30.5 9.6 ( 9.0)

Notes: 1) Data for the large enterprises are taken from Ministry of Labour, Nihonteki Koyo Seido no Genjo to Tenbo (Current Situation of the Japanese-Style Employment System and its Prospects) (1995). The enterprises for which employees work have an average of 3,700 employees.

2) Data for small and medium-size service enterprises are taken from Japan Institute of Labour (JIL), Sabisugyo no Kei-ei Kakushin to Jugyoin Fukushi (Management Innovation and Well-Being in Services) (1997). The enterprises have an average of 50 employees (including part-timers). As the data on employees at large enterprises are available only for male regular employees, the data presented here on small and medium-size service enterprises are also for just male regular employees.

3) The parenthesized figures are from the Ministry of Labour, Chingin Sensasu (Wage Census) (1996). Data on large enterprises are for all male employees at enterprises with 1,000 or more employees. The data on small and medium-size service enterprises are for all male employees in enterprises with 10-99 employees.

3.1 Workers'Career Paths

The first thing to be mentioned regarding the career paths of workers in the small and medium-size service sector is the fact that few new employees in the small and medium-size service enterprises are being employed for the first time. In other words, those who started working life at their current job immediately after leaving school are in the minority. This means that the majority of workers experienced some kind of job before finding their present job. They had changed jobs 2.2 times on average. Where did they work immediately before taking their current job, and why did they quit their previous job and change to their current job?

Attributes of the Employee's Previous Job and His/Her Reasons for Quitting
Most (54.5 %) of those who changed jobs came from other small and medium-size enterprises with fewer than 100 employees. Specifically, 16.4 percent left the public service or large enterprises with 1,000 and more enterprises; 10.3 percent came from medium-size enterprise with 300-999 employees; 15.8 percent departed from small and medium-size enterprises with 100-299 employees; 35.9 percent moved from enterprises with 10-99 employees; and 18.6 percent switched from enterprises with 1-9 employees. A quarter (25.5%) said they were previously in the same industry; 16.0 percent answered they were at the job in a similar industry; and 56.1 percent noted they were in a different industry. Similar tendencies were found for the type of work previously done. About 23.8% were engaged in the same job; 16.0 percent were in similar jobs; and 46.0 percent were in different jobs. Twenty percent left their previous employment because they did not receive good pay; 19.3 percent indicated that they left because they had no future prospects in the former company, only 19.2 percent answered that they could not give full play to their ability. Given that “bad working conditions” was cited as the foremost reason for leaving work, one might conclude that many workers left their jobs to obtain better working conditions⁴⁾.

The Motivated to Join the Workforce
What motivated workers, including those just leaving school, to enter their present company and how did they join? The average age at which they joined their company is 29.2 (32.0 for those who changed jobs). Regarding why they selected their current job, 38.3 percent said they liked the kind of job they had; 20.7 percent indicated that they thought the job was “promising” ; and 19.9 percent claimed that their parents and friends had recommended the job to them. As for finding their present jobs, 29.7 percent found their present job through friends or acquaintances; 19.4 percent did so through ads in newspapers and job information magazines; and 12.9 percent did so through family members. A small percent said they found their present work through schools (12.2%) or through public employment security offices (9.9%). Accordingly, it appears that much of the job-search information in the labor market for small firms flows through people close to the job applicants (e.g., friends, acquaintances and blood relatives).

Future Careers
Finally, 47.4 percent of the workers in the small and medium-size service sector said they would like to continue to work with their present employer. Only 15.5 percent wanted to switch to a better company while 15.4 percent felt they would simply let nature take its course. Another 4.9 percent replied that they wished to retire at an appropriate time and stay at home; 7.2 percent said they wanted to be their own boss in the future, and 8.9 percent replied that they had not yet thought about their future.
As we have already seen, the labor market for smaller-scale service enterprises has many “job hoppers” and is flexible. However, for working life, it has a large number of workers wanting to settle down, more than those who wish to switch jobs or go independent. Of course, these future prospects for working life vary with age and gender. Even so, 25 percent of women in their teens or 20s (the age band where those strongly wishing to change jobs) wish to settle down, compared to 31.6 percent who wish to stay in their present jobs. For men in their teens and 20s, the figures are 17.3 percent and 40.7 percent, respectively. The data show that about 20 percent of those in the generations who are most strongly inclined to change jobs actively do so. Those who wish to settle down represent the majority regardless of gender and age. The percentage of those wanting to settle down climbs to 50 percent to 60 percent among men and women in their 40s and beyond. When observing career paths of workers in Japan's small and medium-size enterprises, it may safely be said that many change their jobs once or twice in their youth, but then come to take a career view of the work in a specific company over into their middle age or older years.

Comparison of Career Paths in Workers between Smaller and Large Enterprises
Table 2 compares the future career paths envisaged by male regular employees in small and medium-size service enterprises with those in large enterprises. While precise comparisons are difficult because of subtle differences in the questions asked, the future career paths envisaged by the employees in the small and medium-size enterprises are similar to those envisaged by their counterparts in the large enterprises: 52.9 percent of workers in the large enterprises and 50.3 percent of those in the small and medium-size service enterprises have a career in their present company. Only 16.1 percent of those at large firms and 13.4 percent of those at small and medium-size service firms wanted to switch to a better firm. In both groups, those wanting to stay employed far exceeded the number wishing to switch jobs or go independent. Those opting to change jobs replied that they “would work for several different firms to be a manager or a functional expert” in the survey of workers at the large enterprises. Those in the small service sector had the category “Want to switch to a better firm, if any” to choose in their survey.

Table 2: Comparison of Careers Envisaged by Male
Regular Employees in Large and Small Firms
Table 2

4.0 Conclusion
     This report shows that small and medium-size enterprises in the service sector hire a large number of people with previous job experience. Accordingly, the position of small service providers in the labor market is considerable. An analysis of the career paths taken by workers in the small and medium-size service enterprises reveals that around 70 percent of all such workers have changed their jobs at least once. It may safely be said that the percentage of those in long-term employment (who enter a firm immediately after leaving school and then stay with that firm until the mandatory retirement age) is considerably lower at smaller firms than at large firms.
     However, one cannot therefore conclude that the majority of workers in small and medium-size service enterprises simply move from one firm to another at “the drop of a coin.” Many of those who have changed work (the average age at which they change to another job is 32.0), have done so several times in their youth, but in their late 30s, they seem to settle down at a specific company and then consider continuing at the same company until retirement. This tendency becomes much stronger for middle-aged and older people, both male and female. In fact, male regular employees in Japan's small and medium-size service enterprises are in some ways rather similar to their counterparts in large enterprises when it comes to the future career paths they intend to follow. In this sense, it is safe to say that at small and medium-size enterprises many middle-aged and older workers enjoy well-developed long-term employment guarantees.
     Finally, workers at small and medium-size service enterprises, are not limited to a career with a single employer. Some will take a job at a small firm and then change to another job at another small firm. Still others will work for a period at a smaller firm and then go into business for themselves. This means that workers in the small and medium-size sector have a number of career paths open to them that offer them various opportunities to improve their working conditions and to have a meaningful life at work.

Notes:	1)	Under the Basic Law on Small and Medium-Size Enterprises, small and medium-size enterprises mean firms capitalized at ¥100 million or less and having 300 or fewer employees in manufacturing, and firms capitalized at ¥10 million or less and having 50 or fewer employees in the retail trades and services.
	2)	In its 1997 Survey on Management Innovation and the Well-Being of Employees in Services, the Japan Institute of Labour received replies from 5,307 firms (22.6%) and from the 9,467 employees (22.3%), in small and medium-size service enterprises with 1-299 employees across the country. Those in 18 service areas were surveyed. The areas include private tutorial schools, barbershops and beauty salons, advertising agencies, waste disposal services, machinery repair services, software services and hospitals. Employees'fundamental attributes were as follows. There were 4,884 males (51.7%) and 4,550 females (48.1%). The educational spread was college education or higher (28.0%), vocational school education (20.4%), technical senior high-school and junior college education (11.5%), senior high-school education (35.5%), and junior high-school education (4.2 %). Regular employees accounted for 94.2 percent of the sample, part-timers and arubaito (temporary workers) accounted for 4.8 percent. Except Tables 1 and 2 (which are data for regular male employees), data in the text denote totals for the entire sample. Breakdown by industry and job are omitted.
	3)	The Ministry of Labour's Koyo Doko Kanri Chosa (Employment Trends Survey) is carried out twice a year among establishments with five or more regular workers. Those who are counted as having had another job are “ those who were employed elsewhere during the year before joining the current employer.”
	4)	Further study will be necessary in the years to come. When considering a labor union or changing jobs as a means of maintaining and improving their working conditions, it may be that some form of labor mobility will prove to be the better option for those at Japan's smaller enterprises. Incidentally, of the enterprises surveyed, only 4.7 percent had a labor union.


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Labour Market and Employment Index

Working Condition/Human Resources Management Index

	Average age	Previous change of job		Number of job changes			Years of continous employment with present employers
	(Year)	Yes	No	1	2	3+	Years of continous employment with present employers
Large Enterprises (N=63)¹⁾	38.9	19.0	80.8	66.9	19.9	13.2	15.2 (16.2)
Small and Medium-Size Enterprises (N=4774)²⁾	38.8	71.0	29.0	43.0	23.8	30.5	9.6 ( 9.0)

Notes:	1)	Data for the large enterprises are taken from Ministry of Labour, Nihonteki Koyo Seido no Genjo to Tenbo (Current Situation of the Japanese-Style Employment System and its Prospects) (1995). The enterprises for which employees work have an average of 3,700 employees.
	2)	Data for small and medium-size service enterprises are taken from Japan Institute of Labour (JIL), Sabisugyo no Kei-ei Kakushin to Jugyoin Fukushi (Management Innovation and Well-Being in Services) (1997). The enterprises have an average of 50 employees (including part-timers). As the data on employees at large enterprises are available only for male regular employees, the data presented here on small and medium-size service enterprises are also for just male regular employees.
	3)	The parenthesized figures are from the Ministry of Labour, Chingin Sensasu (Wage Census) (1996). Data on large enterprises are for all male employees at enterprises with 1,000 or more employees. The data on small and medium-size service enterprises are for all male employees in enterprises with 10-99 employees.