Shingo Tatsumichi Assistant Senior Researcher Japan Institute of Labour

1.0 Japan's Technology is Advanced, but How about It's Human Resource Management?
     A large-scale questionnaire carried out by the Japan Institute of Labour in June 1999 (hereafter referred as “the JIL survey”)⁽¹⁾ revealed that many software engineers in the information service industry were switching jobs to obtain improved working conditions. For example, job switching had resulted in an increase in income of up to 10 percent for many engineers covered by the survey. It is generally believed that the IT industry has come to be characterized by a “new” style of personnel management. The new system is seen as one which places weight on ability rather than age. There is, however, room to question that assumption.

     The accompanying table shows the average income for engineers in different age groups. A positive correlation can be seen between age and income. This gives the impression that the wage-age profile is similar to that associated with the seniority wage system once commonly used to determine the wages of white-collar workers in Japan's large companies. This fact causes us to question whether the personnel management system in Japan's IT industry will be backward.

2.0 A Comparison of Tenure
     The tenure of engineers in Silicon Valley in the United States is one year and seven months; in Japan it is seven years and two months.

     Engineers in Japan do not move about as frequently as their counterparts in Silicon Valley. The frequent job switching in Silicon Valley is in part attributable to the fact that their wages are more affected by factors in the external labor market than is the case in Japan. Many American companies in the IT industry have established systems of remuneration which ties salaries to the grade of duties performed. Job content is precisely specified in job descriptions, with each description linked to a certain wage level. These wage levels are then periodically benchmarked against those for identical position descriptions in other firms in the same industry. Accordingly, the external labor market can be said to be setting some kind of standard for each type of position in the industry.

     The JIL survey revealed that the wage determination mechanism for software engineers in a majority of firms in Japan is a mixture of vocational qualifications and other related factors such as duties, ability in executing duties, the role within the workplace and personal factors such as age, the educational level attained, and past work experience. This finding has been borne out in another survey administered by the Japan Institute of Labour in 2000.⁽²⁾ These findings make it difficult to conclude that performance-based criteria are particularly important in determining wage outcomes among software engineers in the IT industry. Rather, one is led to conclude that the wage determination mechanism for software engineers in Japan is little different from that which is used more broadly for white-collar employees in most of Japan's large companies. An engineer's annual income varies, of course, depending on (1) whether or not the job content is highly advanced or difficult, and (2) whether or not the engineer has skills which are marketable in the external labor market. Nonetheless, the variation in income which can be attributed to such factors is much smaller in Japan than in the U.S.

3.0 “Why Not Come Over to Silicon Valley?
     Some have concluded that the personnel management system in Japan's IT industry is underdeveloped, particularly with regard to the way in which wages are determined. This argument is based on the assumption that many of the traditional employment practices associated with Japanese-style management (e.g., the seniority wage system) are still prominent in the firms which constitute Japan's IT industry. However, in recent years quite a few news reports from the U.S. are about the collapse of the IT bubble in Silicon Valley. They mention bankruptcies among America's dot-com companies and massive lay-offs. Concern is surfacing that the drop in demand for software engineers may be accompanied by a rapid decline in the wages of those engineers. Nevertheless, it would still appear that software engineers in the U.S. earn twice or three times as much as their counterparts in Japan. When informed of the low income earned by Japanese engineers in Japan, personnel managers in many U.S. companies invariably ask, “Why don't the Japanese engineers get out of Japan and fly over to Silicon Valley for higher incomes?”

     The income of engineers aged 50 or older is shown in the accompanying table. The fact that their income remains stable points to an important trade-off. It was common wisdom in the 1970s that programmers should retire at 35. The trade-off was thus highlighted by the accelerating speed at which the technological revolution was occurring. On the one hand, there is the market-led wage system which offers a kind of Darwinian jungle. On the other hand, there is the seniority wage system which will bring a more egalitarian outcome to anyone who is patient and stays in one company. If the ability of engineers deteriorates as they pass through middle age, they are at risk when the market mechanism alone determines wage levels. With the seniority wage system, however, Japanese engineers pay for future income stability while they are young. Will the personnel resource management system of the Japan's IT industry be thought to be backward if it is so?

Notes:
⁽¹⁾ The data which appears in the Table is taken from two surveys conducted by the Japan Institute of Labour according to the following method. The results are presented in Personnel Management and the Labor Market in the IT Industry (The Japan Institute of Labour, Tokyo, 2000). Both surveys were carried out in June 1999. The first survey was sent by mail to private companies. A private credit survey company made a list of 6,725 firms with 10 or more employees in the software industry, the information handling industry and the information providing industry. The questionnaire was mailed to staff in charge of personnel management at those companies. A total of 1,617 firms sent back usable replies, for an effective reply rate of 24.3 percent. The second survey was sent to two engineers in each company (i.e., to a total of 13,700 engineers). The rate of return was 20.1 percent (with usable replies received from 2,689 engineers).

⁽²⁾ This survey was carried out by the Japan Institute of Labour and was commissioned by the Ministry of Labour in January 2000. The findings are presented in a publication entitled Personnel Management and Investment in Education and Training under the Era of Performance-based Evaluation (The Japan Institute of Labour, Tokyo, 2000).

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