Introduction
As a research project for RIETI, my fellow researchers and I have studied the meaning of corporate involvement in welfare provisions and the shape it should take in the future. The findings of the study has been compiled into Institutional Reforms for Enterprise-based Welfare Provisions (Kigyo-fukushi no Seido-kaikaku), a book published by Toyo Keizai Inc. This column is meant to provide a summary of the book.
How and why companies came to be involved in welfare provisions
There are two types of corporate involvement in welfare provisions, namely, bearing statutory welfare costs (the employer's share of social insurance premiums required under law) and nonstatutory welfare costs (fringe benefits to employees). We have examined how and why companies came to be involved in welfare provisions on both statutory and nonstatutory bases, tracing the development in several industrialized countries from the end of the 19th century to the early 20th century. Also, from the viewpoint of international comparison, we have examined how the existing systems of these countries differ from each other and discussed the characteristics unique to each country. Here, I would like to summarize the implications that we have derived from this study.
Firstly, as many countries underwent rapid industrialization subsequent to the Industrial Revolution, some capitalists - those financing major companies - demonstrated enthusiasm for improving welfare for employees based on paternalism. From this, we can see that the idea that companies should play a part in welfare provisions was already taking root in some corners of society at that time. And this provided the foundation upon which a statutory system for corporate involvement in welfare was developed in later years.
Secondly, the advancement of industrialization imposed harsh labor conditions on workers. And this led to the enlightenment of workers concerning their rights, the formation of labor unions and the rise of socialist ideas, thereby intensifying a capital-labor confrontation over the improvement of worker's rights. In response to the demands of workers, companies generally demonstrated some sympathy and agreed to improve welfare for employees, though to differing extents depending on country, industry and the size of each company.
Thirdly, companies work on welfare for a variety of reasons. One motivation is associated with labor-management needs based on the idea that improved welfare will help enhance employee morale. Another is passive in nature, with companies reluctantly agreeing to make their share of welfare contributions as required by law.
Fourthly, the former of the two motivations cited above is a valid interpretation of nonstatutory welfare and linked to the development of welfare capitalism. Meanwhile, the latter motivation, which is based on the ideas advocated in the Beveridge Report on welfare state ("Social Insurance and Allied Services"), explains why statutory welfare contributions by companies have become widespread.
Fifthly, it should be noted that nonstatutory welfare and statutory welfare are targeted at different groups of employees. Nonstatutory welfare offered by a company provides benefits solely to the employees of the company. In contrast, beneficiaries under statutory welfare are anonymous employees or the general public of a country although individual companies make financial contributions to such a program. From the point of view of companies, contributions to nonstatutory welfare are useful for the purpose of labor management, whereas statutory welfare costs are generally regarded as a burden which companies bear with reluctance. Yet, even in the case of statutory welfare, companies may find a positive incentive to make contributions so long as they recognize their responsibility, as members of society, to actively contribute to public policy. Underlying this idea is the perception that private enterprises are a public property.
Sixthly, nonstatutory welfare is dependent upon the capacity of individual companies to pay and the level of benefit differs widely from one employee to another. It is well known that in Japan, as well as in the United States, there are substantial gaps in the level of employee benefits provided by companies depending on the scale of each company. In this respect, it could be considered desirable to rely more on statutory welfare than on nonstatutory welfare so as to reduce such disparities. Or even greater equality of welfare services funded by tax revenue could be called for, whereby all the employees - regardless of their profession or affiliation - would be entitled to uniform welfare services.
International comparison of welfare states
An international comparison of welfare states with respect to the six aforementioned points is given in table 1. Welfare levels in Northern European countries are relatively high whereas welfare levels in Japan, the U.S. and Switzerland are low, with other countries falling somewhere in between. However, it should be noted that the welfare levels listed in the table are solely based on welfare services provided by the public sector. Therefore, it cannot be concluded that Japan's overall welfare level is extremely low compared to other countries. In Japan, families have been playing a significant supplementary role in welfare provisions, as have company-offered nonstatutory welfare services in the U.S.
Ways of allocating the costs of welfare vary widely among countries. Some countries are primarily dependent on tax revenue for financing welfare while others collect social insurance premiums as a major source of funds. Even among countries with welfare programs funded by premiums, there exist substantial differences as to how employers and beneficiary employees share the burden of premium payments.
In Northern European countries, with the exception of Denmark, as well as in Germany, France and Italy, as employer's coverage of social insurance premiums is relatively large. In Japan, the United Kingdom and the U.S., on the other hand, companies pay relatively small portions of social insurance premiums. In the case of the U.S., however, companies' role in welfare provisions is not necessarily small in reality because they tend to bear substantial costs for nonstatutory welfare services.
Finally, let me summarize the conclusions about Japan. On average, Japanese companies bear relatively small burdens compared to their counterparts in many other countries, both in terms of statutory costs - the employer's portion of social insurance premiums required under law - as well as in terms of nonstatutory costs. As far as major companies are concerned, however, the employer's burden of nonstatutory costs is not so small.
Current state of and future challenges facing company-offered welfare in Japan
As symbolized by the term "keiei kazoku shugi" ("employer paternalism") describing certain characteristics of Japanese corporate management, Japanese companies - in particular, major companies - have been playing a significant role in providing welfare for their employees. Provision of company housing, corporate pension plans and retirement pension plans are examples of company initiatives to enhance the welfare of their employees. These schemes surely have their limitations as they are mostly targeted only at full-time male employees. Still, there is no denying that these schemes have played a significant role in compensating for the shortcomings in the nation's feeble social security system. Furthermore, the presence of various employee welfare programs has certainly helped forge stable labor-management relationships thereby contributing to the enhancement of productivity of Japanese firms.
Of course, full-time male employees at major companies represent a tiny segment of Japan's overall working population. Female workers, part-timers and/or those working for small and medium-sized enterprises altogether account for the vast majority of the Japanese working population. And they are now becoming an increasingly important work force as exemplified by female part-timers. At the moment, Japanese companies - including major ones - are at a loss as to how to deal with these employees, namely, those other than full-time male employees. It is no exaggeration to say that the very reason for hiring them is to secure necessary labor force at a lower cost, now that the ability of Japanese companies to pay is falling.
However, Japanese women are becoming increasingly career-oriented with many coming to hold a strong desire to contribute to a company as capable and serious employees. Should companies continue to employ women simply as an inexpensive alternative, it would be detrimental to both the companies themselves and their female employees. Also, ensuring sexual equality in society is the tide of time. It is about time that we recognized the merit of better utilizing the female workforce for the sakes of both women and companies.
Marriage, childbirth and parenting remain obstacles for women in pursuing their career path. Men should participate more actively in childrearing but it will take a while before such a society is realized in Japan. Ideally, systems for maternity leave should be expanded to enable women to continue working. This would help enhance the competency of the female workforce and thus bring benefits to their employers. However, should we force companies alone to bear the entire costs of improving working conditions for women, they might abandon the whole idea of employing them. Our book points out that such companies exist.
In order to overcome these problems, it is necessary for the whole of society to join forces in redesigning the existing systems - including the tax and social security systems - rather than simply leaving the matter to specific employees and their employers. I do hope that our arguments put forth in the book, which shed light on these problems facing women wishing to continue their careers, will prompt full-fledged policy dialogue. Company housing and recreational facilities, retirement allowances, and corporate pension plans used to be the central issues when discussing corporate welfare provisions. However, the focus is now shifting onto how to refine working conditions for women. And now we are entering an era where this problem cannot be solved by individual companies.
Our book also discusses the issue of female employees at small and medium-sized companies. In reality, cases of "family-friendly companies" - companies that offer work rules and environment to help employees manage their work and family life - can be observed only among major companies. In this regard, the ongoing situation marks the re-widening of gaps between large and small companies.
Similar problems are arising concerning retirement benefits and corporate pension plans. Now that it is becoming extremely difficult to maintain a defined-benefit pension plan, we have clarified the merits of a defined-contribution pension plan in our book. However, it is highly questionable whether Japanese people are prepared enough - both in terms of mind-set and practical knowledge - to allow for the proper functioning of the new pension scheme. Furthermore, as another major challenge, there is the question of how to treat the growing number of part-timers, who are currently not entitled to participate in a corporate pension plan. Indeed, a large number of female employees are not covered by any corporate pension plan. The current state of Japan's social security, in which many women have no choice but to rely on the virtually male-only corporate pension schemes, is tantamount to leaving elderly women adrift in a sea of anxiety.
Surely, the need of the times is the expansion of the role of corporate pension schemes. But this inevitably brings up the question of how to manage pension assets. And against such a backdrop, the issue of corporate governance is now becoming important. It is said that pension funds in the U.S., as an institutional investor, are playing a significant supervisory role in implementing corporate governance in American companies. Drawing upon this, what sort of mechanism would be desirable for Japan? In our book, we have pointed out that the corporate governance mechanism in the U.S. is not as efficient as it is perceived to be. Yet, a strong need exists for establishing an effective corporate governance mechanism for corporate revitalization.
The first two chapters of the book discuss what roles companies should play in welfare provisions, reexamining the very root of company-oriented employee welfare programs. We argue that companies may withdraw from the welfare-related area. The argument, though provocative, has been put forward to provide a platform for further debate. With regard to the role of social insurance agencies that execute practical tasks such as the management and allocation of social security assets, two possible options are presented; a selection-competition type system under which beneficiaries are to pick from multiple insurers competing with each other and a participatory type system that calls for greater involvement of individual beneficiaries in the management of social insurance. It is hoped that these proposals will invoke active debate.
We are now in an era where there are growing calls for greater diversity in working styles - including flexibility of work hours - for women and other members of society. In Japan, whose firms have a declining ability to pay, corporate roles in welfare provisions will inevitably pose a major challenge. To what extent should we expect companies to play a role as a welfare provider? To answer this question, we must find a way to simultaneously satisfy two propositions, that is, to maintain and - if possible - improve corporate vitality on the one hand, and to strive to elevate the overall level of public welfare on the other. Although it is no easy task to satisfy these two propositions, I do hope that the arguments put forth in our book will become a starting point for extensive debate on the issue and that we will eventually see the introduction of new policy measures.
Supplementary argument
The views expressed in this supplementary argument are those of the author of this column (Tachibanaki), for which I have not sought any consent from the co-authors of Kigyo-fukushi no Seido-kaikaku, and therefore are presented under this separate section.
My proposition is that it is all right for companies to withdraw from welfare or that they do not have to be engaged in welfare. Although it is quite necessary to enhance the overall welfare level for Japanese people, companies should not be the ones bearing the cost. This is the fundamental idea underlying my arguments.
Let me give some reasons for saying this. Firstly, we are no longer in a time when companies could or should expect favorable labor-management relationships and/or higher employee morale by contributing to welfare. This is particularly true of companies' contributions in the form of nonstatutory welfare provisions.
Secondly, welfare services for individuals and/or workers - such as pension programs, medical insurance and nursing care services - are directly delivered to each beneficiary, and therefore, it is hard to find any clear-cut logical grounds for asking companies to bear the cost of such welfare.
Thirdly, from an economics point of view, it is preferable in many aspects to collect funds for welfare in the form of tax, rather than in the form of social insurance premiums. For instance, what I call "progressive consumption tax" is a more favorable system than the current social insurance premium system from the viewpoint of achieving higher economic growth and greater equality in income distribution. Furthermore, a tax-oriented system would provide a single solution for a range of problems, including the high rate of nonpayment of social insurance premiums, intergenerational disparities, and the preferential treatment of the so-called "Category No. 3" pension beneficiaries, namely, wives of salaried workers. Shifting to a tax-oriented system would effectively eliminate the burdens of social insurance premium payments currently imposed on both companies and employees.
Fourthly, the primary goal of companies is to ensure prosperity in business and maintain employment. Achievement of this goal is considered to be the way for companies to make their utmost contribution to society. Therefore, if companies have to anguish over welfare-related matters, they should be given the option to withdraw.
Fifthly, welfare contributions and benefits, by their nature, should be established by a contract between the public sector and each citizen of Japan. There is no need for companies to mediate between them. This logic is fully applied in Denmark, as mentioned earlier. Systems in the U.K. and Canada - though their level of welfare is not as high as in Denmark - are also close to my argument in the sense that tax revenue is the primary source for financing social security services.
I expect that my argument will invite a range of opposing arguments, but I would be quite content if I could obtain at least readers' understanding to the extent that they acknowledge the existence of such an argument as mine.
