A Test of Theories Underlying the Japanese Lifetime Employment System
Author(s): Jeremiah J. Sullivan and Richard B. Peterson
Reviewed work(s):
Source: Journal of International Business Studies, Vol. 22, No. 1 (1st Qtr., 1991), pp. 79-97
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A TEST OF THEORIESUNDERLYINGTHE JAPANESE
LIFETIMEEMPLOYMENTSYSTEM
JeremiahJ. Sullivan*and RichardB. Peterson**
Universityof Washington
Abstract. One of the unique features of Japanese management
is the lifetime employment system found in large firms. In a
study of two samples, Japaneseexecutivesand personnel directors, severaltheoreticalmodels of the causes and effects of lifetime employmentwere tested. A control model received strong
support. Lifetime employment is offered within a rhetorical
context of loyalty and benevolencebased on culturalvalues. Its
impact, however, is to increase the control of Japanese
employeesby managers.
The permanent,or lifetime,employmentsystemfound in large Japanese
firms has been viewed by many writersas one of the importantfactors
contributing to the success of the Japanese economy in recent years
[Rehder1983].Whatdo we meanwhenwe talk about the Japaneselifetime
employmentsystem?Forthe purposeof our research,weuse a narrowdefinition. Lifetimeemploymentrefersto the practicewherebylargeJapanese
firmshiremanyof theiremployeesdirectlyfromhigh school or university,
employeeswho are expectedto staywith the firm or its subsidiarycompanies until at least the time of normal retirementbetween55 and 60 years
of age [Woronoff1983,Billesbachand Rives 1985]. In return,this special
group of employeesand managersis assuredthat only in the direstset of
circumstanceswill they be laid off. This permanentcadre is limited to
males. Women,employeeshiredfrom other firms, and employeesretained
after retirementare rarelygiven such assurances.
This researchstudy is designedto test the relativeimportanceof various
theoriesin explainingthe rationalefor the permanentemploymentsystem
used by large Japanesecompanies.Specifically,we will look at cultural,
*JeremiahJ. Sullivanis AssociateProfessorin the Departmentof Marketingand
InternationalBusinessat the Universityof WashingtonSchool of Business.He
specializesin researchon Japanesemanagementand is currentlyfinishinghis third
book on Japan, The GentleInvaders:JapaneseManagersin America.
**RichardB. Peterson is Professor of Managementand Organizationat the
Schoolsof BusinessAdministrationat the Universityof Washingtonin Seattle.His
primaryresearchinterestsare in InternationalManagementand IndustrialRelations with specialattentionon Japanesemanagement,problem-solving
bargaining,
and union/nonuniongrievancesystems.
Received: October 1989; Revised: March & June 1990; Accepted: June 1990.
79
80
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
economic,power-control,and motivationtheoriesas possibleexplanations
for its use. Webegin by brieflydiscussingthe backgroundliteratureon the
permanentemployment system. The next section looks at the specific
theories that may explain the use of permanentemploymentin Japan.
Sections three and four present the researchdesign used as well as the
survey results. Finally, we discuss the implications of our findings for
future research.
THE DEVELOPMENTOF THE LIFETIMEEMPLOYMENTSYSTEM
There is considerableevidencethat lifetime employmenthas operatedin
largeJapanesefirmsfor most of the postwarperiod[Abegglen1958, 1973;
Dore 1973;Cole 1979;Clark1979].Thereis some consensusthat the Japanese permanentemploymentsystemas we know it today emergedshortly
after World War II, though some argue that examplescould be found
duringthe inter-waryears. A numberof expertstrace its originsback to
the Tokugawaperiod (1615-1868).Abegglen[1958],for instance,believed
that lifetimeemploymentcould be linkedwith the pre-Meiji(before1868)
feudalsystem.Dore [1973]mentionsthe old "housetraditions"(referredto
as the ie conceptlaterin this paper)of such firmsas Mitsuiand Sumitomo
wherebythe young apprenticemight end up as a trusted manager or
founder of a new "branch house" (p. 391). Clark [1979] traces the
permanentemploymentsystem's origin to the merchanthouses in the
Tokugawaperiod-at least indirectly.Odaka [1984]sees the roots of the
presentlifetimeemploymentsystemin close-knitagriculturalcommunities,
and later in the merchanthouses in the Osakavicinity in the eighteenth
century.Finally, Levine [1958]and Karsh [1984]see its origins in traditional familybehaviorpatterns.The essentialelementsin pre-Meijitimes
includedsubordinationto patriarchalauthority(basedon Confucianideology) and cooperationamong peasant family members[McMillan1984].
Japaneseeconomistsin the 1950sand 1960swereinclinedto say that the
permanentemployment system, imbedded in the feudal frameworkof
Japan,wouldultimatelymovetowardsa morerationalsystembasedon fluctuating supply-demandfor workers. However, with continuing rapid
economic growthin the 1970sand 1980s, Japanesewritersbecame more
positivein extollingthe strengthsof permanentemploymentand its compatibility with historicculturaltraditions.Specific strengthscited include:a
stable work force of experiencedemployees; loyal cadres due to job
securityguarantees;and bettertrainedworkers,sincelong servicejustifies
on companytrainingprogramsthanwhenturnmorecompanyexpenditures
over is high [Odaka 1984;Christopher1984;Cole 1979].
Nevertheless, there has been increasing criticism of the Japanese
permanentemploymentsystemin the 1980s. The most seriouscriticisms
revolvearoundthe fact that secureemploymentfor the permanentstaff
comes at the expenseof temporaryworkerslike women,part-timers,midcareeremployees,and retirees.Moreover,permanentemploymentmay not
THE JAPANESE LIFETIME EMPLOYMENTSYSTEM
81
be able to survivein the face of the aging of the labor force;the changing
valuesof youthtowardsindividualneeds;andthe particularneedfor highly
skilledtechnicalstaff in high-techindustries.Thesecriticismsare madeby
Japaneseand Westernersalike.Yetwith all the debatein the literatureon
permanentemploymentover some thirty years, there are relativelyfew
examples that can be shown where large Japanese companies have
renouncedtheir implicitemploymentguaranteesto the permanentcadre.
However,thereis some indicationthat many employeesin such firms are
moving slowly in the directionof changingfirms ratherthan stayingwith
the same firm throughouttheir work life [Kambara1989].
Several theories have been advanced to explain the presence of, and
possible likely changesin, the Japaneselifetimeemploymentsystem.The
two most prominenttheoriesareculturalrelativismand convergencetheory
(see Sullivan and Peterson [1989] for a more detailed discussion of the
various theories that have been used in previousresearch).
Culturalrelativismarguesthat each societydevelopsa particularpatternof
individual,group, and institutionalbehaviorbased on historicaldevelopments different from those in other countries. While there is variance
within each culture,there are also importantcommonalitiesin behavior
within a given nation.
Much of the earlypostwarliteratureon the Japaneselifetimeemployment
systememphasizedthe distinctivenatureof the group-orientedJapanese
cultureas an explanationfor the lifetimeemploymentsystem(e.g., Levine
[1958], Abegglen [1958, 1973], Dore [1973]). Historical roots for the
presentsystemwereshown to be tracedback to featuresof the Tokugawa
period such as the "household system."
However,duringthis sameperiodone found Japanesewritersextollingthe
needfor largeJapanesecompaniesto borrowmorefromthe advancedindustrial nations like the United States and West Germany(see Petersonand
Sullivan[1990forthcoming]for a detailedhistoricaltreatmentof the literature on the Japaneseemploymentsystem).
More recently,some Japanese writers have been inclined to praise the
culturallydistinctivefeaturesof the lifetimeemploymentsystemgiven the
success of the Japaneseeconomy (see Befu [1980]for a summaryof this
viewpoint).
The secondmajortheorythat appliesis convergencetheory.Its proponents
arguethat the inner logic of industrializationrequiresthat nations at the
samelevelof industrializationexhibitsimilarorganizationalstructuresand
processes;and that individualbehaviorwill become more common in the
worksetting[Harbisonand Myers1959].Therefore,the Japaneseeconomy
wouldshed itself of its feudaltraditionsin favorof modernstructuresand
processesfound in the U.S. and other post-industrialnations. Researchby
Cole [1979], and others (e.g., Dunphy [1987]), provides only limited
supportfor convergencetheory.Ourintentis not to test culturalrelativism
vs. convergencetheory,sincea truetest wouldrequirelongitudinalresearch
82
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER 1991
in Japanand the United Statesto see whetheror not the two employment
systemswere convergingover a period of ten to twenty-fiveyears.
Our study tests specific cultural, control, economic, and motivational
theoriesthat mightexplainthe use and impactof permanentemployment
at the firm levelbasedon responsesfrommanagersand personnelofficials
in largeJapanesecompanies.Each of the theorieswill be discussedbriefly
in the following section.
MODELSOF LIFETIMEEMPLOYMENT
The CulturalModel
Much of the literatureon Japanesepracticesdescribesa model in which
managementis responsiveto a set of importantculturalvaluesin Japanese
society [Hofstede 1980, 1984;Lebra1976;Baba, Perloff, Baba, Lewisand
Iwade 1983].Thesevaluesinspireharmony,trust, paternalism,and familialismin the workforce,whichin turnlead to performancewhich is better
than could be expectedin countrieswithout similarvalues [Ouchi 1981;
Cole 1979]. In this model lifetime employmentguaranteesare a natural
outgrowthof culturalvalues. The impact of lifetime employmentis an
increasein loyaltyand commitmentby employees,a strongmotivationto
help the firm succeed, high quality relationsamong employeesborn of
long associationwith each other, and high performance.
One of the fullest discussionsof this model applied to a large Japanese
corporationis H. Tanaka'sPersonalityin Industry[1988],a study of the
development of ASICS, an $800 million sporting goods company.
KihachiroOnitsuka,the founder,preachesa corporatephilosophyrootedin
a faith that the companyis a family-likestructureexistingfor the benefit
of society and the welfareof its employees.Lifetimeemploymentguarantees are importantindicatorsto employeesthat managersand ownershave
a communal outlook and a "humanistic"focus. The company'sunion
existsto promotecoexistenceand co-prosperitybetweenmanagementand
labor, as does a clan-likeapproachto managing, in-house promotions,
strong socializationactivities, bottom-up decisionmaking,and elaborate
trainingopportunitiesfor workers.TheculturalmodelsuggeststhatASICStype managementis pervasivein largeJapaneseorganizations,and that the
prevalenceof lifetimeemploymentwill be greatestin these kinds of firms.
Basedon this model, we hypothesizedthat the desireto developemployee
loyaltywouldpositivelyinfluencethe use of lifetimeemployment,and that
the increaseduse of lifetimeemploymentwouldlead to increasesin loyalty,
good relationsin the firm, and high performance.
The ControlModel
An alternativetheoryof Japaneselifetimeemploymentemphasizeshistorical
processes,institutionalarrangements,and the powerof a managerialclass
as determinantsof the practiceratherthan culturalvalues [Gordon1985;
THE JAPANESELIFETIME EMPLOYMENTSYSTEM
83
Moore 1983;Mosk 1988]. In this view, large Japaneseorganizationswere
facedwith a rapidlydevelopinglabormovementin the post-PacificWarera
[Tanaka1981].Militantleft-wingunions wereseen to be threateningorganizationalcontroloverproductionimprovements
and technologydeployment
and thus hinderingthe re-industrializationof Japan. The managementunion conflict was defused by the emergenceof enterpriseunions which
traded off control over white and blue collar workersin large firms for
informalguaranteesof lifetimeemploymentand a seniority-based
systemof
wages [Moore 1983].
Managerialcontrol expanded to cover job assignments,hours worked,
training,and geographicallocation.Internallabormarketsdevelopedin the
large firms, based on hiring only at graduation from school. Once
employeeswere hired as lifetime workers,their options to markettheir
skills to other firms became severelylimited. Forced to look inwardto
their own organizations,these employeeswere more easily controlledby
managers.
By offeringlifetimeemploymentand wagestied to seniority,management
took negotiatingpower out of the hands of unions. The developmentof
enterpriseunions paperedover the decline in union power,although the
enterpriseunionsdid (anddo) serveto monitorthe firms'adherenceto lifetime employmentand the seniority-basedwage system [Taira1986;Shirai
1983;Hanami 1979;Ayusawa1966].
VanWolferen[1989]arguesthat the controlmodel is but a part of a larger
societalmodel in whichsocial and economicrelationsarenot as important
as powerrelations.In his versionof the control model, employersdesire
workers who are willing to be loyal to their organizationswithin the
contextof deeplyheld societalvaluesfocusedon communal,familialrelations. The firms use lifetime employmentto createa sense of such relationshipsexisting,but its realfunctionis to increasemanagerialpowerand
control overperformance."Familisticrhetoric"[VanWolferen1989, 164]
based on the ie concept of the firm as a "household" createsan image of
culture-boundprocessesto concealthe realityof powerbeneaththe surface.
We hypothesized, following Van Wolferen,that a desire for employee
loyalty would influence the use of lifetime employment,with a resulting
increasein managerialcontrol and performance.
The EconomicModel
Some Japaneseeconomists flrira 1970;Aoki 1984;Koike 1988]view the
evolutionof the Japaneseinternallabor market(ILM) since the 1930sas
basedon economicrationality,ratherthan on specialculturalfactorsof the
Japanese.They arguethat what is distinctiveabout the Japaneseinternal
labormarketis the fact that throughdemocratizationof the workplaceand
use of extensivecareerladders,there has been a "white-collarizationof
blue-collarworkers"in Japan.The blue-collarworkforcein largeenterprises
has gained through the firm providinggreaterspecific skill acquisition,
84
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
while the more skilled workerhas contributedto desiredeconomic goals
of the firmto a greaterextentthanin othernations.Thus,treatmentof bluecollar workersin Japan is similar to that of white-collaremployeesin
Western Europe [Koike 1988]. However, fewer links exist with the
Americanlabor marketsituation.
Accordingto the economicmodel, the prevalenceof internallabormarkets
in manylargeJapaneseorganizationsis not due to culturalfactorsor managerialcontrolneeds. Indeed,internallabor marketsare the byproductsof
widespreademployer-employeeexchangerelationshipsin which lifetime
employmentis offered in exchangefor the servicesof high-qualitywork
force [Koike 1988; Koshiro 1984]. These ILMs are not characterizedby
particularlyhigh levelsof employeeloyalty,commitment,and malleability,
as one would expect in the other models; this is because the economic
exchangeis a trade-offof employeepowerovertask assignmentsand work
conditions in return for security of tenure [Baron 1988; Whitehill and
Takezawa1978]. The economic model says that Japaneseworkers,when
theyhavebargainingpower,tend to seek securityguarantees.Management
respondsto this power with lifetime employment.When economic and
labor marketconditions change, accordingto this explanation,lifetime
employment guarantees will change rraira 1970; Alston 1983]. Some
evidencefor the model existsin the researchof Marshand Mannari[1971].
They found that long-termemployment(presumablyevidenceof lifetime
employmentguarantees)seemed to be ail incentive offered by firms to
attractand keepskilledworkers.Theycautionedresearchers,however,that
employmentto retirementratesmaybe highnot becauseof guarantees,but
because employeesare simplynot mobile, they lack transferableskills, or
they have family obligationsto remainin place.
Based on the economic model, we hypothesizeda positive relationship
betweendemandfor labor and lifetimeemployment,and betweenlifetime
employmentand performance.
The Motivation Model
In termsof Americantheoriesof motivation,lifetimeemploymentoughtto
inspirehighlycreative,innovative,committedemployees.A motivatorcan
be describedin terms of its impact on (a) the choice to perform, (b) the
amountof effort expended,and (c) the choiceto persistin behavior[Price
and Mueller 1986]. In the model, direction,strength,and persistenceof
workbehaviorshouldbe affectedby an employee'ssensethat he or she has
a job for life. The idea here is that expectationsof future securityand
regularpay increasesgainedthroughseniorityought to be powerfulmotivators [Campbelland Pritchard1976]. Lifetimeemployeesmay be better
disposedto accept the hardgoals which, accordingto goal-settingtheory,
invokeimprovedperformance[Lockeand Latham1984].Lifetimeemployment may spur the acceptanceand use of motivating feedback [Ilgen,
Fisherand Taylor1979].It maycreateconditionsin whichemployeesenjoy
THE JAPANESE LIFETIME EMPLOYMENTSYSTEM
85
variedwork assignments,a key ingredientof job design theory [Dunham
1979]. All in all, lifetime guaranteesmay foster exceptionallyhigh levels
of motivationand performance.Thus, we hypothesizeda model in which
lifetime employmentis positivelyrelatedto motivation.
CHANGESIN THE SYSTEM
It appearsthat the lifetimeemploymentsystemin Japaneselargefirms is
changing[Sethi,Namikiand Swanson1984a, 1984b].It is not clearwhy it
is happeningor how firmsarerespondingto it. Accordingto Haitani[1978]
lifetimeemploymentpracticescannotbe sustainedwhenJapaneseeconomic
growthlevelsoff and whenolderworkersbecametoo numerous.Moreover,
as Japaneseorganizationsseek to developflexibilityin a rapidlychanging
global environment,lifetimeemploymentwill becomea terribleburdenfor
management[Abegglenand Stalk 1985].On the employeeside, mid-career
managersand workersnow find themselveswaitingin long lines for promotion. The temptationmay be strongto abandonsecurityfor the chanceto
obtain betterpositions in other firms. As for entry-levelworkerswho are
able and skilled, they have developeda new confidence that a job will
alwaysbe available,given the low level of unemploymentin recentyears.
In this situation there is no reason to seek job securityguarantees.
If the lifetime employmentsystem is threatened,what are firms doing
about it? Some companiesare abandoningthe system, accordingto the
flood of news reportson the topic in the Japanesepress. Most, however,
are taking steps to retain the practice, either for cultural, control,
economic, or motivationalreasons. We attemptedto develop and test a
change model in our research.Not only would it help researchersunderstandchangesin Japanesemanagementpractices,but also the steps firms
are taking to save the system might provide useful information in
explainingwhy lifetime employmentis used in the first place.
RESEARCHDESIGN
Subjects
It is possiblethat people holdingdifferentpositionsin Japaneseorganizations may view lifetime employmentdifferently.Thus we felt that two
sampleswererequired,one of executivesnot involvedin personnelmatters
and one of personneldirectors.The first sample was based on a list of
3,000 managersrepresentingabout2,500 small, mid- and large-sizedfirms.
Of these 300 were randomlysampled. Responseswere receivedfrom 54
(18Wo).
The second sampleconsistedof 160 personneldirectorsrandomly
chosenfroma list of all Japaneselargecompanies[JapanCompanyHandbook 1987].Samplesizes werea functionof researchfundingavailable.Of
these, 30 responded(19%).Table 1 describesthe samples. The managers
wereolder than the personneldirectorsand representedsomewhatsmaller
firms. There were no significant differences in type of organization,
86
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
TABLEI
Demographic and Organizational Comparisons of Japanese Samples
Managers
(N=54)
Personnel Directors
(N=30)
51.08
2888
41.76
6193
15%
22
15
15
17
5
4
7
13%
60
13
10
0
0
0
4
35%
15
43
7
40%
13
40
7
Sample Characteristics
Respondents' age (mean)*
Organizationsize (employee mean)**
Type of organization
Agriculture,mining, construction
Manufacturing(excluding electronics)
Manufacturing(electronics)
Transport,communications
Trade
Finance, real estate, insurance
Health, law, education, gov't
Multiplebusinesses
Economic environment
Stable market,stiff competition
Stable market, moderate competition
Growingmarket,stiff competition
Growingmarket, moderate competition
Company enterprise union
59%
Yes
41
No
*Sample means significantly different at p<.05 level.
93%
7
**p<.01
perceivedenvironment,or presenceof an enterpriseunion in the company.
Both samplesrepresentedmanufacturingto a greaterextentthan is present
in the Japaneseeconomy [Abegglenand Stalk 1985].
The Questionnaire
The survey questionnaireemployed in the researchwas developed in
English.Then it was translatedinto Japaneseby a professionaltranslator.
backinto Englishby anotherprofessionaltransFinally,it was re-translated
lator. No discrepancieswere noted. Each manageror personneldirector
was contactedby mail in Japaneseand askedto takepartin a studyof lifetime employment,whichwas definedas a formalor informalguaranteeof
employmentuntilretirement.The firstset of itemswerethe dependentvariables. Next came the independentvariables,and finally questionson age,
companysize, type of company,economic environment,and whetheror
not the firm has an enterpriseunion.
Table2 describesthe variables,the items from which each variable'sscore
was aggregated,the means, and the reliabilityalpha coefficientsfor reliaandtherewereno signifbility.Both samplesrankedthe variablessimiilarly,
icant differencesbetweenthe two samplesfor anyvariable.Thesevariables
THE JAPANESELIFETIMEEMPLOYMENTSYSIrEM
87
TABLE2
Descriptions of Aggregate Causal, Effect, and Change Variables
Managers
Causes of Lifetime Employment
Economic
(5 items): need for skilled workers; desire
for low turnover;we offer other incentives;
desire of employees to move; we constantly
do research on labor markets
4.93*
(alpha=
Personnel
Directors
4.45
(.53)
.82)
Culture
(2 items): employee loyalty is desired; entrylevel workers are treated like apprentices
5.30
(.67)
4.94
(.71)
Desire for
Control
(3 items): importance of managerial power
to move workers to jobs and iocations;
importance of training workers to see
management's interests as their own interests; importance of control systems in the
firm
5.43
(.46)
5.40
(.76)
5.08
(.59)
4.56
(.71)
Effects of Lifetime Employment
Performance (5 items): current industry ranking; No.1
status over last five years; higher market
share than competitors; most challenging
work in the industry; we have low turnover
Good
Relations
(2 items): trust is high; communication
processes are good
5.30
(.95)
5.00
(.84)
Loyaity
(5 items): employees are loyal; i want to
keep working for my company; my company
is more rewarding to me than in other
companies; this company brings out my
best efforts; I am realiy happy to work here
5.14
(.66)
4.68
(.79)
Motivation
(8 items): we attract creative empioyees with
high expertise who are hard workers; they
are very sensitive to product quailty; they
easiiy adapt to new technology; they have
high productivity (plus several other items)
5.56
(.91)
5.43
(.83)
Control
(5 items): wage increases are strictly
controiied; employees seidom complain;
managers have great power over subordinates; frequent performance appraisais
occur with written records kept
4.98
(.51)
5.10
(.70)
Change Variable
(3 items); not as important as it used to be;
Deciine in
3.27
3.20
Lifetime
L.E. has been reduced; not as important in
(.79)
(.66)
Empioyment the future
Notes: Means were not significantly different between samples for any variable
Scale 1 = disagree, 7 = agree
*Aggregate mean divided by number of items.
were chosen within the context of the exhaustiveliteraturesearch. They
also were those variables which were needed to explore the models
describedabove.
88
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
Table3 lists two types of employmentmeasures.Measures1, IA and lB
referto employeeswho joined the firm from school. Measures2, 2A, and
2B focus on employees joining the firm from other organizations.
Employeesin both sets of measuresmayor maynot enjoylifetimeemployment. Question 5 directlysought the percentof total regularemployees
who havebeen grantedlifetimeemploymentin the respondingfirm. Questions 3 and 4 sought measuresof the managerialattitudetowardslifetime
employment. The samples were not significantly different in variable
means.Moreover,both samplestendedto see lifetimeemploymentas more
useful in favorableeconomicconditions.By collectingseparatemeasuresof
long-termemploymentand lifetime employment,we hoped to be able to
differentiateconditionsof lifetimeemploymentfromconditionsof merely
stable employment.Responsesto question 5 in our models served as a
measureof the impact of the causal variableslisted in TIble 2. In turn,
this measurewas the cause of the likely effects of lifetime employment
listed in TIble 2.
RESULTS
Models of Lifetime Employment
Table3 lists only significantPearsonproduct-momentcorrelationsbetween
the variables.Forthe managers,culture(thedesirefor loyalty)is the important causalvariableassociatedwith the prevalenceof lifetimeemployment
(question 5). The impact of lifetime employmentis on increasedcontrol
and betterperformance.For the personneldirectors,who havemoreof an
externallabormarketfocus, the greaterthe demandfor high qualitylabor,
the less prevalentlifetimeemploymentis. It appearsthat for personneldirectors lifetime employmentmay be less prevalentin conditionsof a strong
labor marketthan in a weak labor market.
It is interestingto examinethe responsesfor the other variablesin Table3
which measuredthe extentof stableemployment(questions1, lA, iB, 2,
2A, and 2B). Clearlyfor the managersstronglabor marketdemand(the
''economic"'variable)playsa part in fosteringlong-termemployment,but
culturalvalues and the desirefor control are somewhatmore important.
For the personneldirectorseconomicconditionsseemmoreimportant,but
in an inverserelationship.Whereasmanagersreportstronglabor demand
as associatedwithincreasedlong-termemployment,the personneldirectors
reportweak labor demand.
As for the impact of long-term,stable employment,only the managers'
responseswererevealing.Stableemploymentyieldsincreasedloyalty,managerial control, good relations, and performance.It does not increase
motivation.
Responsesto questions3 and 4 explorethe strengthof commitmentto lifetime employment.For both managersand personneldirectors,a strong
commitment to lifetime employment (question 3) is associated with
increasedloyalty.The pictureis less clearregardinga weakercommitment
THE JAPANESELIFETIME EMPLOYMENTSYSTEM
89
to lifetimeemployment(question4). Managerssee such commitmentas a
responseto a desirefor controlresultingin increasedloyalty.Forpersonnel
directors, a weak commitment is driven by economic conditions and
culturalvalues.
RegressionAnalysis
We tested each model in a series of regressionsfor both samplesrelating
causal variablesto the prevalenceof lifetime employment,and lifetime
employmentto its effects.No model was supportedfor the personneldirectors. Figure 1 describesthe model which was supportedfor the managers.
This model is the result of regressingthe prevalenceof lifetime employment measureon all the likely causal variablesspecified in our literature
reviewand model development(culture,the economicvariable,and desire
for control). Culturewas the only variableto emergeas significant.The
second part of the model reportsthe resultof regressingperformanceon
control, good relations,loyalty,motivation,and the prevalenceof lifetime
employment measure. None of these except lifetime employment was
relatedto performance,and so a path wasdrawnfromlifetimeemployment
to performance.Similarregressionsresultedin a path fromlifetimeemployment to control. Culturalvaluesare associatedwith the prevalenceof lifetime employment in the firms studied, and lifetime employment is
associatedwith a strong managerialcontrol focus and with strong longterm performance.The Van Wolferencontrol model hypothesisthus was
supported.
Changesin LifetimeEmployment
Figure2 reportsthe resultsof regressions,investigatinglikelycausesof the
decliningimportanceof lifetimeemploymentand organizationalresponses
to protectthe lifetime employmentsystems.Figure2a can be considered
the result of a model developing process, and Figure 2b as a test
supportingthe proposedmodel using a differentsample.In both samples
the declinewas associatedwith an ageingworkforceand with a decline in
the allegianceof employeesto their companies.The other variablesin the
survey, which were not associated with the decline, were stagnant
economic conditions and a decline in the motivationalvalue of lifetime
employment.Given the correlationsnoted in Table3, these resultsmake
good sense. Lifetimeemploymentis a responseto culturalvalues, not to
the conditionof the economyor to motivationalschemes.Its declinethus
is a response to changes in culturalvalues (and to concerns about the
expenseof paying employeeswho enjoy high seniority-basedpay).
In responseto a decline in the importanceof lifetime employment,we
asked respondentswhat their organizationsdid to protectthe system(see
the third set of variablesin Figure2). The models show that firms foster
retirements,engage in temporarylayoffs (of employeeswithout lifetime
employment),and send excess permanentemployeesto affiliates. Other
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
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THE JAPANESE LIFETIMEEMPLOYMENTSYSTEM
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER 1991
FIGURE1
Path Model for Causes and Effects of Lifetime Employment
Culture
.2
.7
)
/
Prevalence of
a
lifetimeemployment
<
~~~~in
theorganization
\
b
Performance
Notes:
aResults of stepwise regression (.27 is the beta coefficient) of lifetime employmenton
culture,the economic variable,desire forcontrol,and organizationsite. Culturewas the
only significant variable entered in the equation (p<.06). Adj. R2=.07.
bSignificantcorrelationcoefficients (p<.05) fromTable3. A regression of performance
on control,lifetimeemployment,and otherkeyvariablesresultedonly in lifetimeemployment enteringthe equation.Thus no pathwas drawnbetweencontroland performance.
responses,whichwerenot employed,areemploymentfreezes,bonusreducand doingnothing.
tions, reducedovertime,decreaseduse of subcontractors,
ClearlyJapanesefirms want to save some form of lifetime employment,
and they are doing it throughearly retirementsand occasionallayoffs of
temporarystaff. None of the variablesin the model wererelatedto type
of industry,economicconditions,or to the presenceof an enterpriseunion.
Thus the decline in lifetime employment is not due to labor market
demandor competitiveconditions.It appearsto be the effect of an ageing,
costly workforce,and of changes in work values in Japanesesociety.
DISCUSSION
The Japanesemanagerswe studiedsee lifetimeemploymentas associated
with culture. This variable (see Table 2) was measuredby two items
focusedon the organizationaldesirefor employeeloyaltyand on the treatment of entry-level employees as apprentices. These measures were
employedto detectthe extentto whicheach respondentsawhis firm within
the context of a firm as a household(ie). The householdconcept is very
old in Japan, and it has been re-energizedby modern large Japanese corporations. Ie requires organizations to be run with benevolence from above
and submission(called "loyalty") from below. As we found, the stronger
the ie concept,the strongeris organizational"benevolence"in the form of
lifetime employment.
The cultural (ie) basis for lifetime employmentmight be interpretedas
supportfor the culturalmodel describedearlier.If this wereso, we would
expect lifetime employmentalso to be associated with good employeremployeerelations,loyalty,and motivation.Clearlythis was not the case
THE JAPANESE LIFETIME EMPLOYMENT SYSTEM
93
FIGURE2
Path Models for Causes and Responses
to Decline in Lifetime Employment
(significant correlations, p<.05)
(a) Managers
Directors
L
some cmployeesto
desrie eatly
l
Inecasing age of
elo
p
b
employ
.32
~~<
/
f
/
/
~~~~~~~~~~~Decline
ekning trust
nbenteenemployers
1
in
mlportnce
of
lifenime
u
retorand\
34
prblmsardmpneb
,/
Tcmpomy~~~~~~~~layoffs
ou
37
Send employuis
~~~~~~~~to Strong
oafrAiates
pressure
onA
\.~~~~36
Youngemployesr
more self-orientedthnr
<compny-oneted
2\
Encourageearly
retirement
(b) PersonnelDirectors
~~~~~~~~~~~~some
~~~~~
(
employees
ago
Inhcreasing
'AI
^f
socaldobpligatiosofhueod35
/ Wcakenigoftrust>3
betweenemployer
andemployee
(of an
lifetinxmev
hmpousehol
employment,
mebes
recamely
Posil
uno
r
~~<
Ecouragecay
tirement
in our research. Instead, the control model was supported (see Figure 1).
Lifet'imeemployment provides a highly malleable workforce which can be
directed towards strong performance. This model 'is described at great
length by Van Wolferen [1989]. In the model, large Japanese organizations
fear the decline in their power posed by trade unionism. To maint;ainpower
over labor they offer lifetime employment 'in return for increased managerial control over task assignments for employees and geographic ass'ignments. The bargain is struck wi'thinthe context of rhetoric about i'eand the
social obligatilons of households and household members. Possible union
problems are dampened by this rhetoric and by creating company unions,
94
JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1991
whose main task is to monitor the security-flexibilitybargain between
employerand employee.
We would expect, then, that where lifetime employmentis prevalent,an
enterpriseunion would be present.We found that this was the case. On
average,96.6%of the total workforceenjoyedlifetimeemploymentin those
firmsthat also had enterpriseunions. Withouta union, only 78.8% of the
workforceenjoyedtenure(F(1,73)= 13.7,p =.0004). Since most unionized
firms are large,we would expectthe controlmodel to be strongerin large
firms. However,the same model emergedfor both small and large firms.
Organizationalsize was not a significant variable. Firms under 500
employeesofferedlifetimeemploymentto an averageof 800/oof employees.
The averagefor largerfirms was 96%. Both small and large firms, then,
offer job securityto well over 50Gbof employees.
Notice that firms facing a tight labor marketaccordingto the personnel
directors(see the negative correlationsfor the "economic" variablein
Table3) did not use employeelifetime employmentto the same extentas
firms facing a weak labor market. Why is this so? First, workersin a
strongposition are not easily controlledand not very submissive.In this
condition lifetimeemploymentas a control mechanismis not likelyto be
very effective.Second, a tight labor marketsuggeststhat firms may need
highlymotivated,innovativeemployees.Wefound no strongevidencethat
lifetimeemploymentis associatedwith employeemotivation.In summary,
when demandfor laboris high, lifetimeemploymentis nothingspecialfor
workersand does not seem to providethe highlymotivatedworkforcethe
companyneeds. Since it is not attractiveto either side, it is not used as
much as in a weak labor market,accordingto our interpretationof the
personneldirectors'responses.
The controlmodel, then, receivedmoresupportthanthe culturalmodel or
the motivationmodel. Lifetimeemploymentmay not lead to increasesin
employeeloyalty or motivation. However,Table3 revealsthat increased
levelsof employeeloyaltyto the firm do seem to resultfrom high percentages of long-termemployeeswho are likely to retirefrom the firm (see
responsesto questions 1 to 2B). A stable workforcethus tends to inspire
relations,regardlessof the presenceof
loyaltyand good employer-employee
lifetime guaranteesto entry-levelworkers.Indeed, question 2 in Table3
suggeststhat employeeswho join firms after workingelsewhere-people
who do not have lifetime guarantees-make up a significantpart of the
currentJapaneseworkforce.These workers,if they expect to stay until
as lifetime
retirement,maybe just as loyal,malleable,and high-performing
employees.
Wehastento add that data frompersonneldirectorsdid not revealsupport
for any model of lifetimeemployment.Futureresearchclearlywill haveto
focus on furthertestingof the VanWolferenpowermodelas an explanation
of lifetime employment.
The commitmentto a strongform of lifetimeemploymentmay not be as
solid as a commitmentto a weakerform. In Table3, question3 measured
THE JAPANESELIFETIME EMPLOYMENTSYSTEM
95
commitmentto lifetime employmentregardlessof economic conditions.
Question 4 measuredcommitmentto the practicein favorableeconomic
conditionsonly.The meanresponsessuggesta strongercommitmentto lifetimeemploymentin good timesonly,ratherthanin anycircumstances.
Japanese employeesmay find that their guaranteesdo not stand up very well
in economic downturns. As they see their tenure become less secure,
employees'willingnessto engage in ie relations may fade. As Figure 2
shows, a decline in trust and a growingindividualismare associatedwith
a declinein the adherenceto lifetime employment.In a rapidlychanging
global environmentrequiringgreat flexibility by large firms, Japanese
organizations'commitmentto a rigidinternallabormarketsupportedby lifetime employmentis declining.With it will go the ie concept, whichin turn
will open the door for more self-oriented,perhapsadversarialrelations
betweenemployeesand employers.Figure2 hints at suchdevelopments.To
prop up the systemby puttingpressureon some employeesto retireearly
will only hasten the demise of ie, of the employees'faith in the lifetime
employmentbargain, and of the extraordinarycontrol over employees
enjoyedby large Japanesefirms.
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