Special Topic

Vol.38-No.6 June 1,1999

1.0 Introduction

      The current Heisei recession has stimulated the first major debate on overhauling Japanese-style employment practices since the oil shocks of the 1970s. Although employment levels have been adjusted and the practices of long-term employment and seniority-based wages were discussed in every phase of the recession, the nature of the discourse varied from one party to another.

      Middle-aged and older white-collar workers, particularly those of the first baby-boom generation (born between 1942-47), have borne the brunt of employment adjustments during the Heisei recession. They have been caught between changes affecting both the supply of labor and demand for labor. Here we can see internationalization and the informationization of work on the one hand, and the graying population and the push for individualization on the other hand.

      In the early 21st century, Japanese society will age at a rapid pace not experienced by any country. On the demand side, Japan too is entering the mega-competition era, and will not be able to achieve its previous high growth. The scope of market competition will expand on a global scale along with economic globalization. Voices calling for deregulation emphasize the importance of participating in the global market and of promoting competition. Accordingly, com-petition among business circles is becoming stronger. Competition in the business world would have been protected by administrative bodies under the name of regulations. Assurances of job security and personnel costs in large companies with low growth should be reviewed adequately from the standpoint of greater corporate competitiveness and higher productivity. And middle-aged and older white-collar workers in large firms were the target of the review.

      This paper focuses mainly on personnel management practices as they relate to middle-aged and older white-collar workers at large companies after the bubble economy. It also deals with the mandatory retirement system and the extensions of mandatory retirement age and re-employment systems, and reviews trends in shukko (temporary transfers between companies) and tenseki (transfers to another company, or change of permanent employment). In addition, it considers the early-retirement preferential treatment system, yakushoku-teinen (retirement from managerial post at a certain age), and assistance for those wishing to find another job.

2.1 Trends in Mandatory Retirement, Extended Employment and Re-employment

      Retirement and re-employment are sure to be increasingly important issues as the labor force ages. Companies with a retirement system in place have raised the retirement age. Those setting it at over 60 have increased during the period under review (See Table 1).

Table 1. The Percentage of Firms with a Retirement System, Extended Employment and Re-employment as a Percentage of All Firms with a Retirement System

Notes: An extended employment system may be defined as “a system which allows employees who have reached retirement age (which remains unchanged) to continue working.” The re-employment system is “a system under which those reaching the mandatory retirement age are made to retire officially but are re-hired.” Source: Employment Management Survey, Ministry of Labour

      In 1997, 90.2 percent of all companies had adopted the 60-years-of-age retirement system. For firms with 5,000 or more employees, the figure would be 100 percent; for those with 1,000-4,999 employees, 99.5 percent; for those with 300-999 employees, 95.8 percent; for those with 100-299 employees, 94.9 percent; and for those with 30-99 employees, 87.7 percent. On the other hand, while the number of companies setting 60 as the retirement age has increased, there has been a slight decrease in the percentage of firms which have extended employment and re-employment schemes for those who have reached the mandatory retirement age. Since the mandatory retirement system also functions to secure employment for workers until the mandatory retirement age, it would appear that middle-aged and older employees have been looked after better as Japanese society ages. In that context it may be useful to consider recent trends in the employment and treatment of middle-aged and older white-collar workers who will soon reach the mandatory retirement age.

      The figures in Table 2 show how personnel practices have changed from 1991 to 1997. Some personnel measures were implemented by a high percentage of companies in 1997: zaiseki shukko (86%) and the use of an annual pay system tied to job skill (65.5%). However, only a small percentage of firms had in place a mechanism to help middle-aged and older workers switch to another career or to otherwise become independent (7.5%), or to adopt job-related pay and work-related pay schemes (9.8%). Shukko, classified into zaiseki shukko and tenseki shukko, was implement by the greatest number of enterprises. For the survey in question, a little over 80 percent (90% of large enterprises with 3,000 or more employees) engage in zaiseki shukko. As for tenseki shukko, however, the percentage is 30-40 percent, a figure which seems to be decreasing.

Table 2. The Percentage of Firms in which Various Personnel Practices are in Place for Middle-aged and Older White-Collar Employees

Source:
The figures are taken from the Labour Affairs Administrative Research Institute's Survey on the Implementation of Personnel Management Schemes which is conducted every two years. The sample depends on the year in which the survey was conducted, but covers some 2,500 listed companies and 300-400 non-listed enterprises that are comparable to listed ones (which are capitalized at ¥500 million or more and have a work force of 500 or more employees). Replies were received from 300-400 of the companies surveyed.

      There is another set of measures which have tended to be implemented more widely in recent years, indicated by the asterisk in Table 2. For example, the number of firms implementing yakushoku-teinen (retirement from managerial post at a certain age) rose from 29.1 percent in 1991 to 47.9 percent in 1997. The percentage of those which had a variable retirement scheme and an early retirement preferential treatment plan rose from 36.3 percent in 1991 to 43.0 percent in 1997. Those with a scheme for certifying the upgrading of skills rose from 29.6 percent in 1991 to 43.3 percent in 1997. The percentage of firms with an annual pay system rose from 8.3 percent in 1991 to 21.3 percent in 1997. Furthermore, some systems are more widespread among large enterprises. One such system aids middle-aged and older employees who wish to switch to another career or become entrepreneurs. In 1991, 11.4 percent of firms with 3,000 or more employees implemented such a system; the figure was 18.5 percent in 1997. The contract-based employment system, which is not in the narrow sense a measure for only middle-aged and older employees, has also become more widespread in recent years.

      Two inferences may be drawn from these trends. One is that the practice of posting middle-aged and older white-collar employees on shukko and tenseki before they reach mandatory retirement is becoming widespread. In fact, the data shows that jobs are secured for aging employees through shukko and tenseki in virtually every large enterprise. The second is the use of ancillary steps when companies are unable to absorb the rising number of middle-aged and older workers through shukko and tenseki. One such step might be the introduction of a fixed-term appointment for managerial personnel. Another might be the use of a variable retirement age which allows the employee to retire before reaching the mandatory retirement age, receiving the full retirement allowance plus an additional allowance. These measures are quickly becoming popular options.

      At the same time, the selection of staff for managerial positions is becoming more rigorous, and emphasis is now being placed on ability. A more systematic or rigorous selection procedure is connected to the emphasis on upgrading skills through an examination system. The emphasis on ability and skill is reflected in the introduction of the annual pay system. Many large enterprises are beginning to adopt measures which will put a brake on rising wage costs owing to the increase in the number of middle-aged and older workers and the increasing number of employees who qualify for managerial posts under the “old regime.”

      Although shukko has already found general acceptance in large enterprises, the goal in introducing shukko is not the same for each firm. The Ministry of Labour's 1993 Employment Management Survey included information about the reasons for promoting shukko. Shukko was used by 15.3 percent of all firms, but 95.5 percent of firms with 5,000 or more employees and 76.1 percent of firms with 1,000-4,999 employees, compared with 40.3 percent of firms with 300-999 employees, 22.2 percent of firms with 100-299 employees and 8.7 percent of firms with 30-99 employees. If shukko is subdivided into ichiji shukko (temporary transfers with the intention of sending employees back to their original company) and taishoku shukko (involving a more permanent transfer with retirement from the original firm), 95.2 percent of firms with 5,000 or more employees use ichiji shukko and 51.9 percent use taishoku shukko.

      Looking at the reasons for using shukko, 48.7 percent of the firms use ichiji shukko and 48.8 percent of the firms use taishoku shukko to assist the receiving firm which is experiencing a labor shortage. However, the precise reason may vary according to the age of the employee. The older the worker, the more likely that taishoku shukko will be the option. With regard to workers aged over 50, 29.4 percent of firms use taishoku shukko to allow the employee job security beyond the mandatory retirement age; 23.2 percent did so to reduce the number seeking limited managerial posts; and 23 percent did so to reduce the number of redundant workers. The older the employee, the more likely this sort of strategy would be used. It is fair to say that in large enterprises shukko is used as an employment strategy for dealing with middle-aged and older workers through the internal labor market which has been developed within a corporate grouping.

      The Ministry of Labour's 1997 Employment Management Survey provides information on the age at which employees qualify for tenseki shukko, preferential treatment for taking early retirement and assistance with switching jobs or becoming self-employed.

      Tenseki shukko is a system whereby workers terminate their employment relations with their employers and become employed with a subsidiary or other related firm. Early retirement preferential treatment (soki taishoku yugu) is given to employees of a certain age who retire before reaching the mandatory retirement age in terms of add-ons to the normal retirement allowance. Assistance for workers switching jobs (tenshoku enjo assen) is for those who decide to change jobs, and may be in the form of assisting in negotiations with prospective employers or retraining programs. Support for workers who decide to become self-employed (dokuritsu kaigyo shien) may take the form of financial assistance or various forms of cooperation to make the new business successful. All of these systems are designed to facilitate the movement of employees who have reached a specific age out of the firm. In this sense, it could be said that middle-aged and older workers in large enterprises are being pressured to leave their enterprises.

      For tenseki shukko, the highest percentage of firms do not impose a lower age restriction on either managers or general employees who opt for this method. However, many enterprises begin to pressure those aged 55 or over to take tenseki shukko. For instance, 22.9 percent of enterprises with 5,000 or more employees make managers aged 55 and over eligible for tenseki shukko. Moreover, the larger the enterprise, the earlier the age at which workers may be pressured to take a tenseki shukko.

      Second, in implementing schemes for early retirement preferential treatment, 33.9 percent of all firms made the options available to employees aged between 50 and 55. At enterprises with 5,000 or more employees, 42.5 percent provided the option to employees between the ages of 45 and 49. The age at which workers are eligible for the system is a little earlier in the large enterprises.

      Third, nearly 60 percent of enterprises assist employees between the ages of 45 and 50 in their efforts to change jobs. The largest percentage of enterprises (excluding those which set no age requirements) also let employees aged 45 to 50 apply for assistance to establish their own business. The larger enterprises are more inclined to push the middle-aged and older employees out and are likely to put pressure on them to move at a slightly earlier age.

      One of the significant facts that has emerged from an overview of the personnel system involving middle-aged and older white-collar workers is the clear shift upwards of retirement from managerial post. According to the Ministry of Labour's Employment Management Survey for 1994, 13.7 percent of the surveyed firms have an age at which managers are to resign. However, the figures are 35.8 percent for enterprises with 5,000 or more employees; 34.6 percent for firms with 1,000 to 4,999 employees; 26.3 percent for firms with 300 to 999 employees; 19.1 percent for those with 100 to 299 employees; and 10.1 percent for those with 30 to 99 employees.

      A Ministry of Labour survey⁽²⁾ conducted in the early 1990s of large enterprises employing an average of about 4,000 employees found that 43.9 percent of the firms surveyed had a mandatory retirement age for managerial post in place while 55.1 percent did not. In manufacturing many of the firms had such an age, but in construction and the service industries only a few had established such an age.

      Firms which had a retirement age from managerial post were asked about retirement age for different levels of management. The average age set for section managers (kacho) was 55.6; for division managers (bucho) it was 56.3. The largest percentage of enterprises set the age of mandatory retirement from managerial post for section and division managers at 55. This was followed by those enterprises which set the mandatory retirement age at 57 (17.7% did so for section managers and 22.6% did so for division managers), and by those which set it at 56 (16.4% and 15.9%).

      The setting of a retirement age from managerial post often reflected a firm's decision that it had an excess of college-educated white-collar employees. Almost 60 percent of those firms which felt they have far more college-educated white-collar workers than they need had established a retirement age for managerial post. Only 25 percent of those which felt they had an excessive number of white-collar workers with a college degree have adopted the system.

      What career paths do managers pursue after they have retired from their management position? Currently, the largest number (46.5%) continue at the firm in a non-managerial capacity until the mandatory retirement age. Another 24.3 percent work in a different capacity as non-managerial staff within the firm until the mandatory retirement age for ordinary employees. However, 23.9 percent claimed they would immediately be transferred or even change their employment to a subsidiary or related firm or to firms with which their firm had business relations. Another 22.6 percent planned to stay with the same firm for a little while and then will be seconded or change their employment to a subsidiary or related firm before reaching mandatory retirement. In the future, it is likely that a growing number of managers will not be able to stay with their firm after leaving their managerial posts.

      Looking at the annual income of managers after leaving their posts, 70.1 percent said it would drop; 21.3 percent replied they didn't know what would happen to their income. For those who saw their income decreasing, the average was an estimated 19.5 percent. The mode, however, was split between 6-10 percent of the fall or 16-20 percent.

      Several factors have combined on both the supply and demand side in the labor market to highlight the position of middle-aged and older white-collar employees. One set of factors consists of internationalization and sophisticated informationization. The other consists of the aging of the population and the individualization of the employee's needs. Middle-aged and older white-collar workers in Japan's large firms, both male and female, have been at the center of Japan's long-term employment practices. The way in which issues of their employment are treated will be one key to understanding the future of Japanese-style employment practices.

      Recently, the common retirement age for white-collar workers employed in large enterprises is 60. In this sense, the jobs of those employees are secure until mandatory retirement. At the same time, however, there is mounting pressure on middle-aged and older workers to leave “voluntarily.” This is exemplified in the general acceptance of shukko and tenseki before mandatory retirement, and by the emergence of selective retirement systems (including early retirement preferential treatment schemes, placing an age cap on managerial personnel, and the various mechanisms for helping middle-aged and older workers switch jobs or to become independent entrepreneurs). Japan's largest firms have in recent years moved to lower the age at which their workers will be affected by these various policies.

      The employment of middle-aged and older workers becomes problematic when the individual's ability, wages and overall treatment become unaligned.⁽³⁾ The frequent reference to skyrocketing personnel costs when middle-aged and older workers are mentioned must be understood in relation to the balance of these elements. Because wages steadily rise along with age and years of employment in line with seniority-based wage components, older workers tend to be more costly. However, the problem is not simply that older workers earn high wages, but that there are not enough sophisticated jobs suited for the cohort of highly-paid, middle-aged and older workers, or that many of the middle-aged and older workers are highly-paid but do not possess the skills necessary to do sophisticated jobs. That is, the current wage system propagates a system whereby those who are not highly skilled are highly paid.

      When there is a shortage of sophisticated jobs and some middle-aged and older employees are not highly skilled, the relationship between job content, ability and wages becomes unbalanced. Accordingly, any review of employment and the treatment of middle-aged and older workers should fundamentally be understood in terms of the need to recover the “lost” balance between jobs, ability and wages, and should not be considered ambiguously as the “collapse of life-time employment.”

      Attempts to restore the “lost balance” may be considered in terms of the individual enterprise. For the firm, personnel costs will be equal to the multiple of the number of workers times the average wage (which for employees is linked to their age and years of employment in the firm). The “lost” balance is restored by pushing workers out of the company or by cutting the component of earnings which is linked to age and years of employment. Options to decrease the number of employees include shukko and tenseki before employees reach mandatory retirement (and tenseki may contribute to a drop in age-linked wages); forcing workers out by using an early-retirement preferential treatment system or a selective retirement system; or introducing a scheme to help workers switch to another job at a different company.

      Attempts to decrease age-linked wages, on the other hand, may include a strong commitment to a skill qualification system so that there are no upgrading qualifications or increased wages when skill requirements are not clearly met. Setting higher standards for promoting staff to managerial positions through promotion and upgrading tests and the adoption of a double-track personnel management scheme are ways of moving in that direction. Firms may decide not to use the age-linked or year of employment-linked component and the family allowance from the pay package when introducing an annual pay scheme for managers. Finally, the possibility of setting an upper age limit on managerial positions under which employees would surrender their managerial posts at a specific age and accept a reduced salary also needs to be considered.

      The seriousness of the employment situation for middle-aged and older workers varies from firm to firm. And so too will the response of the firm. In enterprises with a large proportion of middle-aged and older workers and a well-developed internal labor market within a larger groups of firms, shukko and tenseki are actively initiated to assure jobs for middle-aged and older workers. But in those enterprises with a lower proportion of middle-aged and older workers and in those enterprises which do not have access to such a developed internal labor market, shukko and tenseki may not be used. In such firms shukko is implemented primarily to provide workers with education and training programs in their younger years.

      In stressing the use of strategies to reduce the number of middle-aged and older workers in many companies or to reduce the impact of seniority on wages, it must also be stated that some enterprises continue to employ older workers who have “irreplaceable” skills even after they have reached the mandatory retirement age. Other employees are retained into their early 60s by the extended employment system and the re-employment system. Put in these terms, it is clear that the highly-skilled older worker may not throw the work-ability-pay relationship out of whack.

      Lastly, 60 is widely accepted as the mandatory retirement age. Although the need to raise the mandatory retirement age or even to abolish the mandatory retirement age completely is being studied, very few enterprises seem keen to set 65 as a uniform standard, or to scrap the retirement age altogether. Rather it is more likely that firms will move to implement ways to select specific individuals for a longer period of employment. Possible responses include the re-employment of designated individuals based on employment needs and the health of the employees, and the retention of active specialists. Some managers express concern about whether they can offer the older worker a job suited to his or her skills. In these ways, it is likely that the notion of mandatory retirement will be relaxed and that employers will cope flexibly using various means to re-employ or otherwise extend the employment of certain employees after taking into account their health, commitment and ability.

Notes:

(1)	For more on shukko and tenseki, see also Hiroki Sato, “Keeping Employees Employed: Shukko and Tenseki Job Transfers: Formation of a Labor Market within Corporate Groups,” in Japan Labor Bulletin (vol. 35, no. 12, December 1996).
(2)	Ministry of Labour, Current Situation of and Future Prospects for Japanese-style Employment System (Nihonteki Koyo Seido no Genjo to Tenbo), Tokyo (1995).
(3)	The enterprises referred to hereafter as examples are taken mainly from the Employment Promotion Corporation and the Japan Productivity Center for Socio-economic Development, “Employment Trends Stemming from Industrial Structural Change and Issues for Effective Utilization of Labor Force” (Sangyo no Kozo Henka ni Tomonau Koyodoko to Rodo Ryoku no Yuko Katsuyo no Kadai), Tokyo (1998).

The Japan Labor Bulletin participates along with several foreign labor law journals in a consortium for the exchange and publication of international labor law materials. The other members of the consortium are: Australian Journal of Labour Law, North Ryde, Australia Arbeit und Recht, Kassel, Germany Comparative Labor Law Journal, Pennsylvania, U.S. Industrial Law Journal, Oxford, England International Journal of Comparative Labour and Industrial Relations, Leicester, England Lavaro e Diritto, Bologna, Italy Relaciones Laborales, Madrid, Spain Revue International de Droit Compare, Paris, France Travail et Emploi, Paris, France

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