Increase the Advantages and Flexibility of Job Relocation!

TSURU Kotaro
Program Director and Faculty Fellow, RIETI

The outset of Japan's new Reiwa era is a good opportunity to reflect on the previous Heisei era and to look forward to where we are headed. This goes just as well for Japan's employment system, which has been both much-praised and much-maligned. In the midst of the tidal wave that is work style reform, where should the employment system head?

It has been pointed out that Japan's employment system, centered on the regular employees of large firms, is characterized by: long-term employment, encapsulated by the phrase lifetime employment; deferred compensation, which is strongly biased toward seniority; and late-stage promotions, reflected by the fact that for roughly the first fifteen years there are hardly any career differences between the different people who joined a company at the same time.

Research conducted in 2017 by Waseda University Professor Hideo Owan, et al., has shown that while the characteristic of deferred compensation weakened, the framework of long-term employment remained surprisingly robust over the 30 years of the Heisei era, when excluding small and midsize firms and people with only a high school education. Likewise, in studies by The Japan Institute for Labour Policy and Training, the wish for lifetime employment is stronger than expected, especially among the young, and it has risen consistently throughout the 2000s.

However, many of the employment and labor problems that we are facing today—namely, issues related to the simultaneous recruiting of new university graduates, employment for senior citizens, long working hours, opportunities for women to succeed, and non-regular employment—are not necessarily caused by the lifetime employment system. It is safe to say that they all stem from the undefined nature of regular employee employment (whereby professional duties, work location, and working hours are left unrestricted indefinitely), which is something not seen in Western countries.

In the West, it is usual for ordinary regular employees' responsibilities to be strictly defined. Going hand in hand with that, work locations are also defined. In Japanese firms, HR departments have discretionary power over employees, who are unable to refuse any order from the HR department to work overtime, or change responsibilities, roles, or work location. This paper will take a closer look at job relocations, which are a big feature of this undefined nature of regular employee employment.

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In Japan, if location-defined work is not specified, employees must normally accept job relocation orders. This working style comes at the expense of family, forcing people to rethink where their children will go to school, the family's circle of friends, and caregiver services for elderly parents.

To avoid these complications, employees often relocate to a new post alone, leaving their family behind. With this reality starting to be seen as a problem nowadays, it is important to reconsider the value of job relocations.

In large firms, it is typical for employees to rise through the ranks through a process of acquiring a broad range of skills by experiencing a variety of departments and responsibilities through periodic job transfers (usually every two to three years). Since people are promoted to higher posts while experiencing different departments and jobs, this could be called a "spiral staircase" skill formation and promotion system.

Transfers that entail a relocation are seen as having played a distinctive and important role in the formation of skills and work abilities, compared to job transfers without relocations.

It's a small wonder, given that job relocations by definition involve big changes in a person's work and living environment. Even more than with work responsibilities, one must deal with significant lifestyle changes, including the need to build human relationships from scratch. This is all the more true when relocated to an overseas post.

And so, to analyze the reality of job relocations, the author and his collaborators, including Associate Professor Shinpei Sano of Chiba University, used the "2017 Internet Survey on Job Relocations, Job Transfers, and Mandatory Retirement" (given to over 300 regular employees of large firms who have at least an undergraduate degree) conducted by the Research Institute of Economy, Trade and Industry (RIETI) to compare people who have experienced job transfers with and without relocations to those who have not. That analysis (empirical analysis of job relocations/transfers and employee performance) discovered the following:

First, people with job relocation experience have a significantly higher job performance than those without that experience, even when personal attributes are accounted for. Their hourly wages are also approximately 11% higher, or roughly 7-9% higher when various attributes are taken into account.

Looking at the effect of the number of job relocations, only the number of overseas job relocations had an effect on wages. Furthermore, using the same technique, the likelihood of being promoted to section manager or higher is significantly higher for people with job relocation experience, showing that the performance of people with job relocation experience is proportionally higher.

People with job transfer experience without a relocation also have higher job performance than those without a job relocation, but there was no significant difference between those with job relocation experience and those that were only transferred within the same location. In contrast, there was a significant difference between people who experienced job locations and people who were only transferred within the same locationin terms of the likelihood of being promoted to section manager or higher. That is, it was found that people with job relocation experience have a higher probability of promotion than those with only job transfer experience.

At this point, one might point out that it could be that firms originally hired highly skilled people, then transferred them to new locations, and that it is therefore not the case that the relocation experience alone increases one's abilities and skills, resulting in higher wages and probability of promotion.

However, the analysis found that job relocation experience produced a positive effect on wages and promotions even when subtracting the influence of the pre-employment factors of club activity experience and industriousness during one's undergraduate period. From this too, it seems that we can say that job relocation itself has a certain impact on wages and promotions, etc., for reasons that cannot be explained by pre-employment factors.

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So, while job relocation experience is an important indicator of promotion in this way, the same survey, when used to investigate the negative effects of job relocations, revealed that the biggest sacrifice comes primarily in terms of life with one's family, with "Family life was sacrificed by relocating to a new post alone" being the top reply (see figure).

Figure: Advantages and Disadvantages of Job Relocation (Multiple Answers Allowed)
Figure: Advantages and Disadvantages of Job Relocation (Multiple Answers Allowed)
Source: Tsuru, K., Kume, K., Yasui, K., and Sano, S. (2018 Report on RIETI's "2017 Internet Survey on Job Relocations, Job Transfers, and Mandatory Retirement" – The Reality and Implications of Job Relocations, Job Transfers, and Mandatory Retirement)

This analysis showed a significant decline in employees' subjective indicators—feeling that one is suited to one's job, job satisfaction, and level of happiness—in cases where job relocation cannot be refused and cases where job relocation measures that give thoughtful consideration to employees and their families are lacking. When there are a lot of such job relocation measures, and when people are asked their opinion of relocation, or where there is a program that allows that allows an employee to request a job relocation due to the relocation of their spouse, it was found that the feeling that one is suited to one's job, job satisfaction, and level of happiness all increased.

Based on the above survey and analysis results, I would like to suggest that it is imperative to establish flexible job relocation schemes that are family-friendly—that is, schemes that allow employees to have their wishes regarding job relocation heard and that aim to address their wishes as well as schemes that allow for relocation due to such things as the relocation of one's spouse.

Furthermore, a radical approach toward solving job relocation problems is the adoption of a system that mandates the assurance of the interconversion between unrestricted regular employee employment and location-defined (region, area ) regular employee employment. The adoption of work location-restricted regular employee employment is gaining ground in large firms.

However, if location-defined regular employees are slotted for and become stuck in lower rank positions, in the manner of general office workers versus managerial track workers (undefined regular employees), it could lead to the creation of even more unreasonable disparities among regular employees.

A scheme that allows for flexible interconversion between undefined regular employee employment and location-defined regular employee employment in accordance with the life circumstances of employees and their families has already started in firms such as MUFG Bank and AIG. I hope that it will spread further.

>> Original text in Japanese

* Translated by RIETI.

May 13, 2019 Nihon Keizai Shimbun

July 26, 2019