Policy Update 086

Essential workers' voices and their loyalty in the Covid-19 pandemic: Expectations for a transformation of the Japanese Employment System

Fellow , RIETI

The other day, I received a link from a joint researcher in the United States. It showed apartment residents leaning out of their windows at 7:00 pm every evening in the New York borough of Manhattan, where the streets largely were deserted due to the shutdown, to cheer on healthcare workers who are treating victims of the novel coronavirus (COVID-19).

A few days later, I watched a press conference by Japanese Prime Minister Abe, in which he stated, "We will strive to improve compensation for healthcare workers such as doctors and nurses, who are working as hard as they can to save the lives of COVID-19 patients, through means such as doubling remuneration for medical treatment from insurance."

Such expressions of gratitude and (liberal) compensation probably represent the sincere feelings of society regarding people doing their jobs in the face of the risk of infection with the virus. Which of these is actually seen as more supportive is likely to vary from one individual to another. In fact, when I asked a family member who works in an occupation whose members were asked to continue operations during the shutdown, I was told that both forms of support were desirable. The family member noted, "Although I do not do my work solely for monetary reward, it's hard to work under these conditions only based on a sense of mission or duty."

Public assistance and special allowance for hazardous duty

On April 7 the Japanese government announced emergency economic measures including a wide range of aid for SMEs and sole proprietorships that had experienced massive decreases in business revenues as a result of COVID-19. Swift assistance for businesses and individuals faced with difficulties in continuing their businesses and employment is a subject of the utmost importance.

On the other hand, one hears almost nothing about public assistance for those other than healthcare workers who continue to be overworked in supporting other social infrastructure (Note 1). It could be argued that special remuneration by national and local governments for healthcare institutions is possible because healthcare is a regulated industry in which service prices are decided by the public sector. However, private-sector businesses, for which the prices of goods and services are determined through demand and supply in competitive markets, face different circumstances. Even though people working in the field in areas such as delivery, sales, public transportation, and home healthcare continue working in response to the needs of society, their remuneration is entirely in the hands of their employers.

The Asahi Shimbun newspaper dated April 15 ran a story headlined "Sugi Pharmacy to pay bonuses to all employees out of appreciation for their hard work in maintaining regular business operations." This story reported that all employees would be paid a "special allowance" (the amount was not announced). This can be considered one example of an enterprise expressing its gratitude to employees in the form of remuneration.

But do workers employed by enterprises that pay such bonuses feel glad to be working for "good" employers (i.e., ones that care for their employees)? Do workers have no choice but to wait passively for recognition from their employers?

An appeal by essential workers from around the world

Since late March, strikes have erupted around the world organized by workers critical of their employers' inadequate safety measures and leave rules, demanding increased wages to reflect more dangerous working conditions. Workers in the field who had merely followed the policies decided by their employers without objection before COVID-19 are now taking action.

An enterprise cannot ignore the demands on such essential workers. For example, Amazon.com raised workers' hourly wages by $2 and doubled overtime pay. Furthermore, employers that ordinarily would dismiss workers who took frequent time off from their shifts are now authorizing unlimited leave (albeit unpaid).

Since services cannot be provided without such essential workers, businesses have shifted in the opposite direction from previous practices of unilaterally modifying compensation and employment rules based on the employer's interests, shielded by the threat of cancelation of employment contracts. They are now incorporating more generous working conditions (Note 2).

Compensating wage differentials

The rationality of additions to essential workers' wages to reflect the risk of COVID-19 infection and the burden of overwork can be explained by compensating wage differentials.

Compensating wage differentials are intended to compensate for differences in working conditions (Rosen 1986; Borjas 2019). Typical examples of such differentials are the high wages paid to workers employed in dangerous jobs that involve high rates of occupational injury (wage premiums) (Note 4). French and Dunlap (1998) demonstrated that a positive wage primum is paid for work that entails psychological fatigue.

According to the concept of compensating wage differentials, the work of a retail worker who now is under the risk of infection with COVID-19 differs from his or her previous work, when there was no such risk. It would not be possible to secure the same utility as before unless higher wages were paid in accordance with the higher level of risk. Workers who continue to be overworked while bearing such risks can demand compensating wages in response to the fact that they now face higher risks, regardless of whether their motivation for continuing to work is simply to cover current living expenses or stems from a sense of responsibility.

In Japan, it was reported that the Uber Eats Union demanded hazard pay of 300 yen (about $2.5) per delivery as well as distribution of masks and disinfectants to employees (Note 3). This represents a demand from workers for compensating wages. However, such cases of action by workers, such as strikes, demanding such hazard pay or safety measures are rare in Japan.

Hirschman's "exit" and "voice"

Why is remuneration for special contributions considered in Japan to be an expression of the employer's gratitude, instead of being widely considered the fair price of labor? Simply citing a submissive national temperament and trust between labor and management does not fully explain this phenomenon. Instead, we should consider it more thoroughly as one consequence of the changes in the labor markets over the past 20 years or longer. Here we will consider this phenomenon based on Hirschman's Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, published exactly half a century ago.

Noting the performance of a firm or an organization is assumed to be subject to deterioration for unspecified, random causes, Hirschman argues that management perceives its own failings through the two routes of "exit" and "voice." The "exit option" is exercised through leaving the organization, and the "voice option" is taken through general protest to management when members express their dissatisfactions directly. In either case, management must utilize the employees' exercise of exit and voice options to determine appropriate methods or means of correcting for their own failings.

Hirschman goes on to consider the interactions between these two options. While the voice option is the only way in which dissatisfied members can react whenever the exit option is unavailable, the exit option is a last-resort reaction that can be exercised after the voice option has failed. While the voice mechanism is made more effective by the feasibility of the exit option, if the exit option can be used easily then the likelihood of exercise of the voice option decreases. Put another way, the relationship between the exit and voice options can be summarized as one in which the exit option is considered to drive out the voice option, while the voice option plays an important role only once the exit option effectively has been excluded.

The case of labor markets in Japan

Next we will apply Hirschman's theory to the exit and voice options of workers in Japan. This first requires separating the subjects into regular employees and other workers. These two categories, which differ considerably in terms of employment security and compensation, also differ with regard to the opportunities and qualities of the exit and voice options they can exercise in the face of their employers.

Another reason for separating these two categories is the fact that contemporary labor markets are divided broadly into a market for regular employees and one for non-regular workers. While it is said that Japan's labor markets have seen a permeation of diverse working styles over the past two decades, in essence this has consisted of increases in the types and shares of workers who are not employed regularly. In 2019, non-regular employees accounted for a share of 38.3% of workforce (according to the Ministry of Internal Affairs and Communications' Labour Force Survey). These include contracted employees, dispatched workers, and part-time workers. If independent contractors, who work as individuals without being employed by enterprises, also are considered a type of non-regular worker, then non-regular workers' share of all workers would increase even further.

Regular employees

Regular workers can begin to understand their relatively advantageous position if they envision a future in which non-regular employees account for a majority of the labor market. If regular employees who see this status as providing a sense of stability have a strong sense of uncertainty about finding new employment as regular employees after exiting their current companies, then they might hesitate to exercise the exit option.

Hirschman argues that ordinarily the main method of expressing one's dissatisfaction with an organization from which exit is inconceivable is through employing some means to make one's own voice heard. However, it is uncommon for regular employees in Japan to take the initiative to utilize their voices in such a manner with their employers.

This makes sense in light of the following explanation: A member of an organization in which the price of entry and the price of exit both are high will be slower to feel dissatisfaction, and as a result will be slower to begin to exercise the voice option. On the other hand, since its high price removes the threat of exit as an effective means of expression, in such an organization it often is possible for employers to suppress both the voice and exit options.

Interpreted in the light of Japanese labor practices, the high price of entry is related to the practice of hiring regular employees mainly upon graduation, while the high price of exit is connected to compensation practices that involve a strong element of delayed payment, such as seniority-based wages and retirement benefits. Even if guaranteed the opportunity to exercise the voice option through labor unions or other means, workers who expect postpaid compensation after joining a company as new graduates will tend to refrain from exercising the voice option to their employers because they are largely satisfied with their treatment, including their expectations for the future. Isn't it in fact likely, under labor-management relations that appear at first glance to be cooperative and which are supported by workers who desire long-term employment despite being somewhat dissatisfied, that the practice of regular employees exercising neither their exit nor their voice options will become a fait accompli?

Non-regular employees and individual contractors

In general, employment of non-regular workers is highly fluid. Furthermore, treatment of such workers often lacks delayed payment such as seniority-based wages and retirement benefits. Since their treatment is determined based on their productivity at each point in time, their exit costs are not very high if they have grown more dissatisfied with the employer. In such cases, not a few non-regular workers will choose to exercise the exit option without having exercised the voice option.

In general, employment of non-regular workers is highly fluid. Furthermore, treatment of such workers often lacks delayed payment such as seniority-based wages and retirement benefits. Since their treatment is determined based on their productivity at each point in time, their exit costs are not very high if they have grown more dissatisfied with the employer. In such cases, not a few non-regular workers will choose to exercise the exit option without having exercised the voice option.

In addition, the diversity of working styles and employment relations among non-regular employees means that their voices are not always aligned. Due to their low wages and weak employment security, part-time and contracted workers employed directly by enterprises will not commit to union activities by paying monthly union dues (Note 5). In the case of indirectly employed temporary employees, if the temporary agencies that employ them are fearful of losing contracts where their employees are placed, then such agencies are unlikely to communicate the workers' complaints to the enterprises where they are placed. Independent contractors are unable to negotiate with enterprises because they are considered to be self-employed instead of employees, even if the working relationship in fact resembles one of employment (Note 6). Ultimately, within a structure in which the complaints of non-regular workers is not (or cannot be) conveyed to the employer, when a problem arises it does not serve as an impetus for negotiation with the employer.

In this way, both regular and non-regular employees appear to tend to refrain from exercising the voice option vis-a-vis their employers, each for their own reasons. Even today, while working under the risk of COVID-19 infection, are workers maintaining the traditional attitude of hesitating to voice demands for compensating wages or more stable working conditions?

Efficacy of the voice of essential workers

However, in the process through which the whole of society has been forced to respond to COVID-19, relations between employers and employees are changing. These changes in relations can be seen in the increasing efficacy of the exit and voice options, particularly for workers who previously had not been considered core human resources in the enterprise.

For example, it has been reported that despite a rapid increase in online orders, 30% of warehouse workers at Amazon.com in the United States exited their workplaces due to fears of exposure to COVID-19. In addition, the remaining workers exercised their voice option to demand better pay and benefits from management. Employers, unable to ignore the voice of warehouse workers, accepted demands for hourly pay increases and leave. This represents an unexpected change in power relations between employers and workers as a result of COVID-19 pandemic.

But what about the case of Japan? As in the U.S., many workers are supporting their workplaces in areas such as sales and logistics despite the risk of exposure to COVID-19. Many of these essential workers in the field are non-regular workers. For example, the majority of workers (50.6%) in the wholesale and retail industries are non-regular staff or employees (according to the Ministry of Health, Labour and Welfare's Labor Force Survey: Detailed Tabulation). From the small number of news reports about large-scale exits from sales and logistics fields, it can be surmised that most non-regular employees, for whom it should be easy to exercise the exit option, choose not to do so but to continue working instead.

At the same time, there have been reports of part-time employees voicing their demands for improvements to conditions after exposure to overwork and harassment by customers. If the voice mechanism becomes more effective as the possibility of exit increases, then in the current crisis in which an exit of non-regular employees would make it impossible to maintain business operations, their voices clearly are becoming increasingly influential. The special bonuses paid by employers as described above can be seen as both an expression of gratitude to employees who did not exit and a swift response to the potential voice of workers demanding compensating wages.

Loyalty to jobs

Hirschman argues that the possibility of exercising the voice option increases with a higher degree of loyalty to the organization. Could the voice exercised by non-regular employees in the sales and logistics fields then be seen as an expression of loyalty to their employers?

The voice of employees working in the face of the risk of COVID-19 seems to arise more from a sense of mission in their own roles than from loyalty to their employers. Perhaps this sense of mission could be interpreted as loyalty to the job. Non-regular employees in the field may be raising their voices in the workplace out of a sense of mission that inspires them to want to carry out their own duties fully.

If workers' loyalty is directed more toward the job than toward the employer, then employers must recognize the possibility that this loyalty may not continue over the long term. Workers who have lost hope in their employers while working under arduous conditions may choose to exit (resign) from the enterprise once the situation has settled down and they feel that they have fulfilled their missions.

So how can employers repay the loyalty and sense of mission of non-regular employees in the field who have supported them through this crisis, even after the crisis is over? Taking their contributions lightly not only could lead to the exit of workers but also could impact the employer's reputation and survival over the long term.

Early signs of post-crisis changes

If workers who are not in the field at this time (such workers seem to consist mostly of regular employees) do not feel any major dissatisfactions with their employers and have no intention of exiting, since they do not face any direct risks, then the efficacy of any voice option they exercise would be as low as before the crisis (or at least would not increase). If so, then the voice option of those working in the field, who include many non-regular employees, could be given a relatively higher weight. This is likely to force changes in the relationship that has become pronounced over the past two decades under which regular employees' voices have maintained influence as core human resources while non-regular employees serving in roles as peripheral workers have meekly followed their lead.

This change in the influence of the two groups should be reflected in the treatment of workers as well. The best answer for employers to the question of how to secure capable human resources regardless of the form of employment may be to give suitable remuneration, including the fair price of their special contributions, to workers who bear risks in the field—who, as this crisis has shown, are critical in supporting the employer's survival. This may mean that the era of providing uniform advantages in employment security, higher wages, and generous allowances only to regular employees, as the core of the enterprise, may at long last come to an end.

However, it also is a fact that it would be difficult to realize such expectations without a change in the current system, under which it is difficult for the voice of workers, especially those who are not regular employees, to be taken seriously by their employers. In the current crisis, the opinions of workers in the field often were expressed through social media and other online platforms. However, even if they do see such informal voices on social media, employers are under no obligation to negotiate with them.

For example, online communities of drivers have existed in ride-sharing services since the start of such services. However, even when drivers have demanded some guarantee of their rights as employees, enterprises have refused to negotiate directly, citing the fact that the drivers are independent contractors.

In the absence of systemic changes through new laws and court decisions, employers' responses tend to simply follow past practices. In addition, even if these opinions expressed through social media only represent workers letting off steam about their dissatisfactions, for them to become an actual threat to employers as non-negligible voices, would require the backing of society, which is not something that can be predicted.

Even so, since there would be no impetus for changes to enterprises and systems in the absence of workers exercising their voice and exit options, the healthy voices calling for improvements should not cease.

The original text in Japanese was posted on May 8, 2020.

  1. ^ In the United States, Senate Democrats have proposed the COVID-19 Heroes Fund for purposes such as increasing pay to essential frontline workers such as doctors, nurses, grocery-store employees, and public-transportation employees.
  2. ^ "Gaps in Amazon's Response as Virus Spreads to More Than 50 Warehouses" (April 5, 2020; New York Times); "Employees of Instacart and Amazon in the U.S. strike in response to COVID-19 fears" (March 31, 2020 morning edition; Asahi Shimbun)
  3. ^ "COVID-19 emergency: Businesses are forced to decide how to respond, including whether to close or remain open" (April 11, 2020 morning edition; Mainichi Shimbun)
  4. ^ 8.1% of part-time workers are estimated to be members of labor-union (vs. 17.0% of employed persons) (2018). (Ministry of Health, Labour and Welfare, Basic Survey on Labour Unions)
  5. ^ This includes workers for ride-sharing and food-delivery services.
  6. ^ "Gaps in Amazon's Response as Virus Spreads to More Than 50 Warehouses" (April 5, 2020; New York Times)
  • Hirschman, A. O. (1970) Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Harvard University Press.
  • Rosen, S. (1986). The Theory of Equalizing Differences. Handbook of Labor Economics, 1, 641-692.
  • Borjas, G. J. (2019) Labor Economics, McGraw-Hill Education.
  • French, M. T., & Dunlap, L. J. (1998) Compensating Wage Differentials for Job Stress. Applied Economics, 30(8), 1067-1075.

July 7, 2020