Japan's Employment System from a Historical Perspective: Formation, Expansion, and Contraction of Internal Labor Markets

Author Name NAKABAYASHI Masaki (University of Tokyo) / MORIMOTO Mayo (University of Tokyo)
Creation Date/NO. June 2019 19-J-036
Research Project Reform of Labor Market Institutions
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This paper aims to position the Japanese employment system in historical perspective from the industrial revolution until the present. The contribution of labor to economic growth over the last century can be decomposed into the transfer of labor from the agricultural sector to the non-agricultural sector, the accumulation of general skills through the improvement and spread of public education and the accumulation of industry-specific and firm-specific skills. Additionally, the Constitution of the Empire of Japan of 1889 and the Civil Code of 1896 guaranteed freedom of movement to its citizens,which resulted in high labor mobility of workers into the 1920's, in contrast to western countries which adopted this much later, leaving them with fewer institutions geared towards motivating employers to invest in industry-specific skills of workers. In the age of high mobility, there were two methods of skill accumulation in Japan. One was the private cartels of employers as observed in the silk reeling industry, and the other was indirect management as observed in the mining industry. Both systems declined and ceased to function into the 1920s and skill accumulation was relegated to internal labor markets, under which employees are motivated to work for a specific firm. In the 1980s, even blue collar workers were hired en mass after graduating from high school or college. The employment system that is unique to Japan might not provide people who are not new graduates with equal opportunities of employment. To respond to rapid changes in technologies, we might want to return to the employment system where workers spend several years searching for a firm to which they devote their lifetime.