the japanese employment system in transition 1 all authors were or are research associates at the...

International Business Review 9 (2000) 525–553www.elsevier.com/locate/ibusrev

The Japanese employment system in transition1

Daniel Dirks, Martin Hemmert, Jochen Legewie*,Hendrik Meyer-Ohle, Franz Waldenberger

Deutsches Institut fu¨r Japanstudien, Nissei Kojimachi Building, 3-3-6 Kudan-Minami, Chiyoda-ku,Tokyo, Japan

Abstract

In the post-bubble era, Japan is going through major structural upheavals and the relevanceof the five perspectives presented here on the implications of these changes for the Japaneseemployment system can hardly be overstated. The institutions and practices of the Japaneseemployment system are closely linked to the Japanese model of skill formation, humanresource management and innovation. The relevance of “lifetime employment” for the accumu-lation and preservation of knowledge within companies has been documented for example incomparative studies on the Japanese and US semiconductor industries. The knowledge sharing,problem solving capacities and high commitment of Japanese employees are very muchenhanced by the late selection characteristics as implied by “seniority” based promotionschemes. If the skills, the innovative capacities and the commitment of Japanese employeeshave been so much supported by the salient features of the Japanese employment system, itis essential to see what is happening to the latter when reflecting on the future of the former.This is the prime purpose of this article. Each of the following sections looks at specificchanges in the economic environment, that are challenging the further viability of “traditional”human resource management practices: In particular, the first section looks at the rapid agingof the work force as a key “domestic” factor, while the second section looks at the implicationsof Japanese internationalisation in the post-bubble era and, especially, the “hollowing out” ofthe industrial system due to increasing competitive pressures from low labor cost countries.Adaptations necessitated by these challenges have already transformed the Japanese employ-

* Corresponding author.E-mail address:[email protected] (J. Legewie).

1 All authors were or are research associates at the German Institute for Japanese Studies, in Tokyo.Daniel Dirks is currently employed in the field of human resource development at a major company inGermany. Martin Hemmert is a research fellow with the Deutsche Forschungsgemeinschaft (DFG) at theUniversity of Essen. Jochen Legewie is deputy director at the German Institute for Japanese Studies.Hendrik Meyer-Ohle is Assistant Professor at the National University of Singapore. Franz Waldenbergeris Professor for Japanese economy at Ludwig-Maximilians-Universita¨t, Munchen.

0969-5931/00/$ - see front matter 2000 Elsevier Science Ltd. All rights reserved.PII: S0969 -5931(00 )00017-2

526 D. Dirks et al. / International Business Review 9 (2000) 525–553

ment system and will continue to do so, as is discussed in the third section. It is not difficultto guess that this will have repercussions on the process of knowledge creation and transferin the Japanese economy and the final section therefore looks specifically at the changes tothe Human Resource Management system in the Japanese Innovation System. 2000 ElsevierScience Ltd. All rights reserved.

Keywords:Labor market; Employment system; Hollowing out; Human resource management; Skill forma-tion; Lifetime employment; Seniority; Innovation system; R&D

1. The aging society: a structural challenge for the Japanese employmentsystem

1.1. The problem

It seems to be a general law that economic development slows down populationgrowth and, together with longer life expectancy, leads eventually to an aging popu-lation. Japan is no exception. Quite to the contrary, Japan has over the last 50 yearsexperienced the fastest economic development among the leading industrial nations.It is now also experiencing the fastest demographic changes.

Fig. 1 clearly shows that measured by the share of the population of age 65 andolder, Japan has been overtaking other industrialized nations. It will take the leadaround the year 2000. Only Germany shows a similar pattern of development. Fig.2 underlines the high speed at which aging occurred in Japan compared to otherindustrialized countries.

Demographic changes have obvious impacts on labor markets and employmentpractices through their direct effects on the size and age composition of the laborforce. The purpose of my section is to assess these effects and to show how theJapanese system is reacting to them. Japan is not only experiencing relatively rapiddemographic changes, but salient features of the Japanese employment system which

Fig. 1. Share of population age 65 and older 1985–2005. Figures for 2005 are estimates. Source: Datataken from Ishi (1996: 65).

527D. Dirks et al. / International Business Review 9 (2000) 525–553

Fig. 2. Increase of share of population age 65 and older from 7% to 14%. Source: As for Fig. 1.

are directly related to age — long-term employment stability, seniority based wageand promotion schemes — also seem to make the Japanese economy especiallyvulnerable to changes in the age composition of its labor force.

As we can see in Fig. 1, aging is not a new phenomenon; it is a process whichstarted in the 1980s. This section will look at how the Japanese labor market reactedto these changes in the period between 1985 and 1995. These past adjustments allowus to speculate about future developments.

1.2. Adjustments and mismatches in the labor market

Changes in the age structure of the population affect the age composition of thelabor force. There might be compensating or amplifying effects through changes inthe participation rate of each age group. A comparison between the actual and theestimated age composition of the labor force in 1995 reveals, however, that changesin the participation rate dampened the aging of the labor force in Japan only slightlyover the last ten years (Fig. 3).

How did the labor market react to the shifts in the age structure of the labor force?One answer is given by Fig. 4, which depicts mismatches between labor demandand labor supply according to three structural characteristics: age, occupation andregion. We can see that since the breakdown of the bubble economy, mismatchesrelating to the age structure of labor supply and demand have been steadily increas-ing, thereby surpassing even the previous peak reached in the mid 1980s.

One side of the mismatch, namely unemployment, is depicted in Fig. 5. Between1985 and 1995, the Japanese unemployment rate rose by almost one percentage pointfrom 3.4 to 4.3%. Surprisingly, the youngest age group experienced the by far strong-


Fig. 3. Changes in the age composition of the labor force. 1995 estimate based on 1985 labor forceparticipation rates. Source: SMA (1990, 1997a), own calculation.

Fig. 4. Structural labor market mismatch 1985–1996. Mismatch index=1/2Σabs[(Ui/U)2(Vi/V)], Ui(Vi)number of persons looking for work (demanded) in groupi, U(V) total number of persons looking forwork (demanded). Source: Roˆdosho (1997: 34).

est increase. This indicates some sort of collective short sightedness on behalf ofJapanese employers, because the reluctance to employ new graduates will aggravatethe problem of aging in the long term. However, this reaction comes as no surprise.Given the long-term orientation of Japanese employment relations, reduced growthexpectations and increased uncertainty about future economic conditions are apt tolead first and mainly to a reduction in the number of newly hired school and univer-sity graduates. It is at the entrance to the “lifetime-in-house career track”, wherecompanies can most flexibly adjust the number of core employees. Here is one indi-cation of the difficulties Japanese employment practices have in coping with the


Fig. 5. Changes in unemployment rates by age groups 1985–1995. Source: SMA (1990, 1997a), own cal-culations.

intertwined problems of reduced growth and aging. The revision of recruitment poli-cies warranted by the first problem runs counter to the solution of the second prob-lem.

1.3. Lifetime employment

The concept of lifetime employment suggests that Japanese employees stay withone company — “their company” — over the whole period of their working life.Indeed, the length of tenure of male Japanese employees, i.e. the number of yearsthey have spent with their present company, is longer than in other OECD countries(Waldenberger, 1996: 100–104). However, this only applies to male employees, andthe average of 12,5 years is still much shorter than a working life of 35 to 40 years.Hence, one characteristic of lifetime employment is that it does not apply to all maleemployees. And even where it does apply, namely to career employees in largercompanies, is it not lifetime. 90% of all companies with 30 or more employees havea mandatory retirement age for their regular employees (Roˆdosho, 1997: 242).

One important change in reaction to the aging of the labor force over the lastdecade can be seen in the tendency of increasing the age of mandatory retirement(Fig. 6). The practice of lifetime employment is approaching the ideal. Socially, itis to be welcomed that companies offer longer employment by postponing mandatoryretirement. Economically, the question is however: How does it pay? The possiblecost effects of later retirement are twofold. One is related to the principle that wagesrise with age and tenure (see Section 1.4 below). Will this principle be extended tothe later retirement age? The other aspect concerns the retirement benefits thatroughly 90% of companies with 30 or more employees pay and which depend onthe length of employment. Will they rise in correspondence with longer tenure?

Relevant statistics reveal that the policy of offering longer tenure to regularemployees did come at little extra cost to the companies. The treatment after the


Fig. 6. Adjustments of the age of mandatory retirement 1985–1996. Companies with 30 or moreemployees. Source: SMA (1997b: 44).

age of 55 did not change fundamentally. Seniority benefits, be it in the form ofhigher wages or higher retirement pay, have not been adjusted to later retirement. Thewage curve for age groups beyond 50–54 years shows in 1995 the same, although asomewhat less steep downward slope as in 1985 (Fig. 7). As for retirement benefits,they normally do not accumulate beyond the age of 55. There is also a generaltendency to move from wage based calculations to a point system where the moneyequivalent of one point is not linked to wages but determined separately (Kitajima,1995: 94–95).

1.4. Seniority

The second pillar of the Japanese employment system is seniority. It is apparentin two ways. Wages tend to increase with age or more precisely with length of tenurewithin one company. This is of course also true for other countries, but in Japan therelationship is more pronounced (Hashimoto & Raisian 1985, 1992; Waldenberger,

Fig. 7. Wage decline after age 55 in 1985 and 1995. Contractual earnings. Male regular employees. Allindustries. Age group (50–54)=100. Source: RSC (1986a, 1996a).


1996: 106–110). The second aspect to seniority is promotion. You generally do notovertake your senior in your own company. Both aspects of seniority are influencedby shifts in the age composition of the work force. The first aspect results in a costeffect. If elder employees receive higher wages, the average wage level increaseswhen the percentage of elder employees rises. The second aspect results in whatmay be called a “jam effect”. How does a company deal with the problem of havinga larger number of elder career employees?

With regard to the cost effect, Japanese companies indeed took measures todampen the age related wage drift. Fig. 8 depicts the changes in the wage profilefor standard male employees with a university degree in companies with 1000 ormore employees in the manufacturing sector. This group was selected because, first,male university graduates form the core group of employees, second, in large compa-nies the principle of seniority is most pronounced and, third, manufacturing industriesare most strongly exposed to international competition so that companies in theseindustries should be the most cost sensitive.

To what extent did the flattening of the wage curve compensate for the wage driftinduced by the aging of the work force? If we take wages as of 1985 and employmentas of 1995, we obtain a 4.8% increase in the average wage level which we canattribute to aging. The 1985 employment situation combined with 1995 wages(deflated by the average wage increase between 1985 and 1995) leads to a reductionin the average wage level by 3.7%. This can be attributed to the flattening of thewage curve. Taken together, the flattening of the wage curve compensated the effectof aging not fully, but to a large extent.

How did Japanese companies cope with the problem of aging in the context ofpromotion? Of course, only a small proportion of employees can be promoted totop positions. Some actually lose their status of regular employee. This is partly theresult of transferring elder employees from larger to (often affiliated) smaller compa-

Fig. 8. Wage curve for standard male employees 1985 and 1995. Scheduled wages. Wage at age 22=100.University graduates, companies with 1000 or more employees in manufacturing. Standard employeesrefers to those employees who stay with the same company until retirement. This fact explains the differ-ence to the wage curve shown in Fig. 7. Source: As for Fig. 7.


Fig. 9. Change in employment status experienced by elder employees. Male employees in the non-agricultural sector. Source: SMA (1985, 1995).

Fig. 10. Transfer of elder employees from larger to smaller companies. Male employees in non-agricul-tural sector. Company size is measured by number of employees. Source: Roˆdosho(1997: 237), own cal-culations.

nies. Both policies, the change in employment status and the transfer to smallercompanies are well documented by Figs. 9 and 10.

These policies however were not sufficient to cope with an increased share ofelder employees. Companies also reacted by creating relatively more top positionswithin the company (Fig. 11). This might partly be attributed to the general trendof “white-collarization” of companies. But it is also a simple reaction to the problemof aging in the context of seniority based promotion schemes.

1.5. Conclusion

The findings of this section are mixed. Seen at the macro level, the Japanese labormarket had difficulties in coping with the rapid aging of the Japanese labor force.


Fig. 11. Relative change in number of employees by rank 1985–1995. Male employeesin companieswith 1000 or more employees in manufacturing. Source: RSC (1986b, 1996b).

At the company level, flexible adjustments with regard to the age of mandatoryretirement and the age profile of the wage curve go along with more or less rigidpromotion schemes.

The prospects for the future are equally mixed. Simple extrapolation suggests (1)higher structural unemployment, (2) further flattening of the wage curve with regardto tenure and (3) a more than proportionate increase in top management positions.Developments like (1) and (3) have intrinsic limits and will certainly result in cor-recting measures. These and the already mentioned adjustments under (2) however,are bound to undermine the age related characteristics of the Japanese employmentsystem, i.e. lifetime employment and seniority.

2. Foreign direct investment, trade and employment: a discussion of“industrial hollowing out” in Japan

2.1. Introduction

Most of the discussion about the recent rise in unemployment in Japan focuseson the strong decline of the manufacturing sector that has shown a loss of nearlytwo million employed persons between 1992 and the end of 1998. Within the publicdiscussion in Japan, the rapid shift of manufacturing activities abroad, mainly toAsian countries, has been given as a major reason for this development and raisedthe fear of an industrial hollowing out. This fear is based on the assumption that therecent trend of shifting production abroad results in less exports from and moreimports to Japan and by this leads to a delocalization of domestic production andemployment (Saitoˆ, 1996; Seki, 1997).

Between 1991/92 and 1996/97, this view seemed to be supported by a strikingsimultaneity of (1) a rapid rise of foreign direct investment (FDI) by Japanese manu-facturers, especially to Asian countries, (2) a continuous decrease of the Japanese


trade surplus, and (3) a growth of employees in Japanese overseas affiliates by about1 million persons that contrasted the simultaneous employment decline in Japan.Since then, however, the fragility of such a view based on a simple correlation ofdifferent developments has become obvious. Although Japanese manufacturing FDIremained at a relatively high level, the Japanese trade surplus has again grownstrongly. In the half year period April to September 1998, it even amounted to 7.4trillion yen representing the largest surplus since 1986. Employment in the Japanesemanufacturing sector, however, continued to decline by another million persons untilthe end of 1998 (SoˆmuchoTokeikyoku, 1998).

Thus, the simple argument for an industrial hollowing out based on a negativerelation between of overseas investment and domestic employment fails to explainthe decline of the manufacturing sector in Japan. Hence a more detailed analysis ofthe effects of FDI on trade and domestic employment is needed for Japan. Such ananalysis is provided by this section that draws heavily on detailed data provided bythe Ministry of International Trade and Industry (MITI) and which will argue for astrong positive overall effect of FDI on employment in Japan in the past as well asin the future. It starts with a brief theoretical discussion of domestic effects of FDIwith an emphasis on indirect ones. The following section quantifies and analyzesthe direct effects of Japanese manufacturing FDI on trade as well as domestic pro-duction and employment for the fiscal years 1991 through 1996. The final sectionaddresses the function of FDI within the current economic restructuring process inJapan emphasizing country-specific characteristics and the role of FDI in Japan forthe securing of domestic production and employment in the long run.

2.2. Theoretical and methodological remarks

Numerous theoretical and empirical studies have been undertaken in Westerncountries throughout the last 30 years to examine the trade, production and employ-ment effects of outward FDI in manufacturing industries. Over the whole time, onlya few academic topics have generated such a variety of different results, conclusionsand political recommendations (see OECD, 1995). During the 1970s, two large-scalestudies for the US by Frank and Freeman (1978) and Glickman and Woodward(1989) concluded that American overseas investment abroad on balance has led toa loss of domestic jobs. Similar findings were given for Great Britain by Owens(1980), for Germany by Fikentscher and Moritz (1980) and for France by Arthuis(1993). However, there are as many studies stating positive overall net effects fordomestic exports and employment. To name a few, Lipsey and Weiss (1981) andKravis and Lipsey (1988) for the US, Beyfuss and Kitterer (1990) and Jungnickel(1995) for Germany and Kokko (1993) for Sweden. The lacking consensus on boththe sign of the effects and their magnitudes has to be seen primarily as a reflectionof poor data availability combined with the complexities of the analysis and arisingmethodological problems. Beside lacking data, measurement problems arise from theexistence of direct and indirect effects as well as important differences between staticand dynamic, micro-economic and macro-economic approaches.

While the direct effects of FDI might be both negative (export displacement and


import stimulation) and positive (export stimulation), all authors agree with the gen-eral positive nature of indirect effects (OECD, 1995). Such indirect effects must beunderstood as differences to hypothetical scenarios with less or no FDI. They includethe strengthening of the global competitiveness of companies investing abroad by abetter access to a wide range of input factors, by organizational advantages of inte-grated international productions systems and by proximity to local customers andcompetitors, enabling fast and flexible responses (Dunning, 1988). In a dynamicperspective, it is even more important to note that certain production losses are inevi-table for every developing country due to a change of comparative advantages. Inthat case, positive indirect effects of FDI arise by allowing additional exports, secur-ing cheaper imports and an overall strengthening of the competitiveness of companiesand industries. Thus overseas investment can help necessary industrial restructuringwithout causing an additional negative impact compared to a situation with less orno FDI (Madeuf, 1995).2

2.3. Direct impact of Japanese FDI on trade, production and employment inJapan between 1991 and 1997

The analysis of direct FDI effects in this section is based on figures provided bythe MITI calculating changes in trade flows to and from Japan which are directlydue to overseas activities of Japanese manufacturers.3 By using industrial input–output tables, these changes in Japanese exports and imports are converted to changesin domestic production and employment. According to MITI’s calculation method,the single trade effects can be described as follows:4

Theexport stimulation effectmeasures the increase in exports of capital and inter-mediate goods from Japan by calculating exports to Japanese overseas affiliates.Accordingly, the effect must be divided into two sub-effects describing the exportincrease of capital goods for fixed capital formation and that of components servingas input factors for the production overseas.

export stimulation effect= volume of fixed capital formation in overseasaffiliates

* ratio of capital goods from Japan+ component purchase volume of overseas affiliates* ratio of components from Japan

The import stimulation effectmeasures the increase of imports to Japan due to FDI

2 Finally, it is important to note that FDI in trade restricted sectors does not displace exports for theywould not take place otherwise. However, it might allow for an extra export of capital and intermediategoods to overseas affiliates (see next section).

3 In 1970, MITI conducted the first annual survey on overseas activities of Japanese companies. Thecontents of this survey have been constantly extended and provide detailed information on productionactivities and trade flows of Japanese overseas affiliates.

4 For a detailed discussion of the different effects mentioned here, see TsuˆshoSangyoˆsho (1995: 33).


by calculating imports from Japanese affiliates abroad. These goods are supposed toreplace production that has formerly taken place in Japan for the domestic market.

import stimulation effect= volume of sales of overseas affiliates * ratio of salesto Japan

The export displacement effectmeasures the decrease of exports originating inJapan due to an increase in overseas production of Japanese affiliates abroad. Thesegoods produced overseas are supposed to replace exports from Japan that formerlyhave been either directed at the country of the overseas affiliate or that have beenexported to other countries.

export displacement = volume of sales of overseas affiliates * (12 ratio ofeffect sales to Japan) * Japanese share of world importsJapanese share of world= world import volume from Japan/Japanese overseasimports affiliates/total world import volume

In general, this method of calculation tends to overestimate negative effects. Theformula for the import stimulation effect does so by implying that imports fromJapanese overseas affiliates only displace domestic production but not other imports.A more significant exaggeration comes with the calculation of the export displace-ment effect. The formula assumes a displacement of Japanese exports by Japaneseoverseas affiliates according to the Japanese share of world imports. However, sucha displacement does not take place in trade restricted sectors such as automobiles.5

Based on these calculation methods, the direct effects of Japanese FDI on Japaneseexports and imports between April 1991 and March 1997 (fiscal years 1991 through1996) are illustrated by Fig. 12.

Fig. 12. Direct trade effects of Japanese FDI, 1991–1996. Source: Tsuˆsho Sangyoˆsho, (1998: 72).

5 Due to its large leverage effect, this estimate of substitutability presents the biggest problem for allapproaches that try to calculate the impact of FDI on domestic production and employment, see alsoFrank and Freeman (1978), Glickman and Woodward (1989) and Madeuf (1995).


The main finding lies in the fact that the overall influence of Japanese FDI onJapan’s trade balance has been positive to neutral until 1995 and only turned slightlynegative in 1996. Or in other words, the influence of FDI on Japanese trade hasbeen of a complementary, rather than of a substitutive, character for most of thetime. This result is of the utmost importance, for it stands in sharp contrast to thedelocalization argument. Although FDI replaced exports and led to an increase inimports, at the same time it also stimulated exports of capital and intermediate goodsto an extent that outweighed the negative impact of FDI on the Japanese trade balanceuntil 1995. Accounting for a probable overestimation of the import stimulation andexport displacement effects, the real overall effect on trade might even have beenpositive in 1996.

These findings are directly reflected in the sectoral and regional changes of theJapanese trade balance. A striking feature of changes in the Japanese trade structureis the decline of consumer goods on the export side which is accompanied by anenormous rise of imported consumer as well as capital goods between 1991 and1997 (SoˆmuchoTokeikyoku, 1998). But this growth of imports to Japan is clearlyoutweighed in absolute terms by the increase of capital and intermediate goodsexported from Japan within the same time.

However, Fig. 12 also shows an undeniable trend shifting from positive to negativetrade effects. This indicates that the positive effects of additional exports of capitalgoods to overseas affiliates might not be able to offset export displacement and risingimports caused by FDI in the long run.

To measure the effects of FDI induced changes in trade flows, we return to thedata provided by MITI that has applied the trade effects directly to changes in pro-duction and employment in Japan. To do this, industrial input–output tables thatdifferentiate between 103 kinds of goods have been used to calculate the effects,first on domestic production, and then on domestic employment in a second step.6

As the calculation of the direct impact on domestic production and employmentis based on the trade effects illustrated by Fig. 12, it is not surprising that Fig. 13and Fig. 14 show a similar trend with the overall effect turning negative over time —it is important to note that the production and employment effects shown here havebeen calculated for the whole Japanese economy and not only for the manufacturingsector. However, the manufacturing sector stands behind roughly 80% of thesechanges — despite a similar general trend in all three figures, an important differenceis revealed by a comparison of the overall effects for 1994 and 1995. Although thetrade effect was still slightly positive in 1995, the impact on production and employ-ment already turned negative in 1994. This is to be explained by the strong shift oflabor intensive production processes abroad that could not be substituted totally interms of employment by the more capital and technology production processes thatremained or increased in Japan.

6 For a detailed description of this method of calculation and related problems, refer to Tsuˆsho San-gyosho, (1998: 80–92).


Fig. 13. Direct production effects of Japanese FDI, 1991–1996. Source: TsuˆshoSangyoˆsho, (1998: 74).

Fig. 14. Direct net employment effect of Japanese FDI, 1991–1996. Source: Tsuˆsho Sangyoˆsho,(1998: 74).

Summarizing the analysis of the domestic impact of FDI until March 1997, tworesults have to be stressed.

First, accounting for a certain exaggeration of negative effects that are due to thecalculation methods used here, the direct influence of Japanese FDI on domesticproduction and employment has been positive rather than negative. Although FDIresulted in some direct delocalization of production activities, this loss was nearlyoffset by an extra export of capital goods to overseas affiliates. Due to the clearpositive — though not quantifiable — character of indirect effects, an overall evalu-ation of both direct and indirect effects shows an even more positive relation betweenthe development of FDI abroad and employment at home. This finding stands insharp contrast to the hollowing out argument that attributes the overall decline inmanufacturing employment observed in Japan since 1991 partly to the rise in over-seas investment.

Second, however, there is an undeniable tendency of the direct employment effectthreatening to turn negative in the future. This will not only be enforced by shiftinglabor intensive production processes abroad and rising imports from there. Even


Fig. 15. International comparison of foreign production quota, 1985–1995. Foreign production quota=s-ales by overseas affiliates/domestic sales. Source: US Department of Commerce, Deutsche Bundesbank,MITI; quoted from TsuˆshoSangyoˆsho (1998: 30).

more important seems the trend to a rising local/regional procurement of capitalgoods by Japanese affiliates abroad that will directly reduce imports from Japan, atendency that is especially true for affiliates in Asia. Thus, securing employment inJapan can only be achieved by the industrial restructuring process as further lossesof existing production will be inevitable.

2.4. Role of FDI within the industrial adjustment process in Japan

At first sight, the need for industrial restructuring in Japan strongly resembles thesituation in Western industrial countries. Here the discourse on domestic effects ofFDI has already started to focus on a discussion of the respective location conditionsat home some years ago (OECD, 1995). However, to look at the Japanese industryin the same way as in Germany, the US or the United Kingdom would mean neglect-ing an important difference that characterizes the Japanese industy in a very distinc-tive way.

Although Japan has rapidly caught up in terms of production costs to the level ofother industrialized countries in the 1980s (OECD, 1997), the internationalization ofits economy and industry are still clearly lagging behind (Fig. 15). Even the strongshift of manufacturing activities abroad since 1985 could not change this picture.This holds true for every single Japanese industry including the most inter-nationalized ones like electronics and automobiles (see Table 1).

Table 1International comparison of foreign production quota in selected industries 1995a

Japan United States Germany

Food and beverages 2.6% 24.9% 4.9%Textiles 3.5% – 11.1%Chemicals 8.3% 47.5% 66.0%Iron and steel 6.8% – 12.5%Machinery 8.1% 32.3% 19.9%Electronics 15.5% 30.0% 34.5%Transportation equipment 23.9% 45.9% 46.0%Total 9.1% 26.0% 23.0%

a Source: As for Fig. 16.


This large backlog indicates an increasing threat of further production losses andthus an urgent need for industrial restructuring in Japan. In the late 1980s, thebubbleeconomy and a strong domestic demand still allowed a delay in adjustments to therapid change of comparative advantages in Japan (Legewie, 1998: 294–310). Sincethen, however, the restructuring process has been characterized by a remarkable netloss of production and employment which indicates the inability to shift to newsectors with sufficient speed. Overly high domestic prices for services in excessivelyregulated sectors like energy, transportation or finance and overly strong rigiditiesin Japan’s budget system, as well as in the Japanese education and employmentsystems, have turned out to be important domestic factors that prevent an optimalallocation of resources within Japan. Within the ongoing restructuring process, over-seas investment plays an important role but it cannot solve these structural problemsthat hinder the growth of new industries and impede a prolonged revitalization ofthe Japanese economy. If FDI will rise mainly due to these structural factors, it mightpose an actual threat to production and employment in Japan. This would occur,however, only as a symptom, not as the root, of deindustrialization.

3. Economic restructuring and the Japanese employment system

3.1. Introduction

When the discussion turns to the employment system inside Japanese firms, thefollowing issues are usually cited as marking the current, transitionary character ofpreviously established routines and practices:

— widespread, personnel-related cost reduction measures pursued by firms of allsizes and across all industries;— an increase of more precarious employment forms such as a rise in the numberof part-timers hired;— generally an increase in employment flexibility, namely functional and finan-cial flexibility,— a more results-oriented, profitability-based work organization and resultantincentive (remuneration) schemes.

It is then acknowledged that these developments are a reaction to a range of largelyexternal changes in the wider economic environment. These changes comprise agrowing severity of competitive conditions, repeated and large oscillation of currencyvalues, an increasing demand for adequate capital returns, continued deregulationmeasures affecting all industries and socio–demographic changes that also impactthe composition of the work force.

Profound as these external pressures appear, they seem to call for no less than anew, radical break with the past. Change, it is upheld, is not only imminent but willalso be profound in scale and scope and definitely irreversible. The reader will cer-tainly recognize these lines as being more or less in accordance with current state-


ments found in the daily news, research reports, and conference declarations. It will,however, perhaps be somewhat surprising to learn that the above given lists of changefactors and resulting actions were taken from a section written in the early 1980s(Kinoshita, 1984).

This deja vu-type revelation, namely that putatively current issues are not so recentat all and that Japanese firms have been exposed to, and reacting to, largely similarproblems for far more than a decade inevitably leads to a number of critical ques-tions. What is happening when seemingly new agendas reveal themselves really asold ones? Have the lessons of the two oil recessions that apparently led to Kinoshita’s(1984) assessment been forgotten in the meantime? Are we looking atcyclical issuesafter all, of the type “serious today — forgotten tomorrow”? And finally, are weperhaps dealing with hyped-up, mainly rhetorically important issues while realitygoes on out there relatively unperturbed?

3.2. Issues for analyzing employment in (Japanese) firms

These questions, far from being mere polemics, point to at least three aspectsthat need to be tackled when analyzing employment adaptation strategies, namely aconceptual, an empirical, and apolitical issue. Distinguishing between these threeissues or levels with regard to employment is a necessary analytic requirement any-where, and thus not confined to Japan, as studies elsewhere have amply demon-strated. Hence, Japan’s companies in this respect are but a specific case exemplifyingproblems of a more general nature.

Extensive studies on personnel trends in UK firms, for instance, have shown thatthere is a need forconceptuallyclarifying what exactly is meant when one discussesemployment or human resource management (HRM)? Storey, 1995: 5, for example,in summarizing major HRM-related research over the past decade or so has arguedthat HRM has remained an “amalgam of description, prescription, and logicaldeduction”. HRM’s ambiguous character concerning the nature of its pertinentcause–effect relationships assumed, strategies chosen, and personnel measuresimplemented leads one to the (obvious) conclusion that there isno singular, universalmodel of HRM, an assessment that is equally applicable to HRM’s precursorperson-nel management(Legge, 1995: 71).

A second problem relates to the fact that (new) HRM models’empiricalevidenceis scant at best (Storey, 1995: 8–9; Legge, 1995: 84). Despite the fact that, in theoryat least, a range of policies and tools directed at the use and development of humanresources have been widely discussed for years, there is little indication that muchof this has been implemented in reality and even less evidence that there is anystrategic integration of personnel policies with corporate plans (Storey, 1995: 14).

The reasons for this disconnection between model(s) and reality may be found ona third,political level. It is here in particular where organizational change arguablyis much easier said than done. A whole range of potential conflicts regarding firms’extant belief systems and established organizational and managerial practices standsagainst the notion of new best practices emanating from technological, economic,and social change imperatives and models. Furthermore, it must not be forgotten


that current human resource development routines are seen to have constituted acornerstone in the successful upbringing of organizational knowledge creation byJapanese firms. Following the concept of Nonaka and Takeuchi (1995), it is, forinstance, difficult to imagine viable substitutions to the profound roles of the middlemanagement and team structures in favor of more individualistic concepts as pro-posed by some.

In summarizing the problems and issues regarding the analysis — and practicaltask — of changing an organization’s personnel or HRM system, we arrive at theneed, first and foremost, for a model or conceptual idea about

→Why is change needed?→What to change?→How to change given structures and practices?

Any predictions regarding a “new (Japanese HRM) management”, and any normativeprescriptions directing the way there, need to clarify these points in order to gainunderstanding and acceptance.

3.3. The Nikkeiren Initiative

The Japan Federation of Economic Organizations (Nikkeiren, 1995) has comeforward with a widely publicized proposal for a new human resource managementmodel that has since dominated public debate on this matter. This proposal is basedon the premise that, given current socio–economic and technological developments,the way to rejuvenate Japanese firms and make them viable for the future is to changecorporate cultures and restructure employment portfolios (Table 2). Individual initiat-ive is to be preferred henceforward over group-oriented behavior, and responsi-bilities, decision authority and expertise are to be clearly organized according towork and employment standards that define, among others, job contents, trainingprograms, and performance evaluation.

Distinguishing between acore group of long-term employees,specialistswhowork on specific, possibly short-term, problems, and a third, peripheral group thatis likely to concentrate on simple, routine tasks and that does not entertain a longer-

Table 2The Nikkeiren Initiative — problem definition and solution seta

Problems Demands

Context conditions Improved labor cost adjustment flexibilityLow capital return Strategically disposable employee portfolioDiminished productivity Clearer employment standardsInsufficient innovative capacities Greater availability of specialistsSlow decision making processes More individual initiative and entrepreneurshipGroup-cohesion Less group-domination within organisation

a Source: Nikkeiren, 1995: 30–34.


term orientation vis-a`-vis the company, Nikkeiren (1995: 35–37), proposes the intro-duction of “multitrack personnel systems” (fukusengata jinji seido) in Japanese firms(Fig. 16). Each of these tracks is to feature distinct hiring, remuneration, welfare,training, and promotion schemes and should be integrated in different ways into thestrategic and organizational plans that companies adopt to meet the new market chal-lenges.

Accompanying this proposal, Nikkeiren provides an analysis of the personnel situ-ation in Japanese firms and a range of structural suggestions. However, its initiativeclearly is not a change blueprint, i.e., does not include suggestions of how to getfrom point A to point B in figurative terms. The question therefore then is how muchof this has been or is being put into practice? Are Japanese firms, exposed to manyof the same environmental changes as their counterparts in other countries, any betterat overcoming the “rhetoric vs. reality” problem? A closer look at firms’ remuner-ation and incentive systems is to suggest some answers to these questions with poten-tially far-reaching consequences.

3.4. Incentive systems and labor cost flexibility

The Nikkeiren proposal must be read as an appeal to increase flexibility in termsof a greater ability for firms to adjust their labor costs according to short- and longer-term trends in the wider economy. The claim that seniority-related components ofwages and bonus schemes are relatively high in Japan is based on a widespread,long-established consensus (Ohashi, 1994; OECD, 1996: 104–107).

Distinguishing betweenabsoluteand relative wage or labor cost flexibility, how-ever, charges concerning an absolute wage inflexibility clearly must be refuted. Infact, the variability of aggregate wages (nominal and real) has historically been sig-nificantly higher in Japan than in any other major OECD country over the last 30years (OECD, 1996: 113). Major contributors to this ability by firms to swiftlyrespond to unfavorable changes in their business environment and a worsening of

Fig. 16. Nikkeiren employee portfolio proposal. Source: Nikkeiren (1995: 32).


their profit situation are the reduction of paid overtime and a moderation of annualwage increases and bonus payments (Ohashi, 1994: 306; Roˆdosho, 1997: 457, 468).

An additional factor beneficial to the given wage flexibility of Japanese firms istheir growing use of “part-time” and other, non-core employees. Their share of thetotal employed work force has risen from 12.7% in 1981 to around 20% by 1996(Rodosho, 1997: 164). Lower wages for this employment group as well as the relativeease with which they can be released in difficult times both further increases theabsolute labor cost flexibility and reduces the general wage level per firm. In a sense,this development corresponds with the Nikkeiren proposal to establish a peripheralwork segment within firms. However, as this development apparently is embeddedin a longer term trend, this aspect of Nikkeiren’s program is less of a proposal buta description of an ongoing process.

The issue ofrelative labor cost flexibility is more problematic. The current debatefocusses on the relation of total wages to age, job content, and performance, arguingthat less of the first is needed, while remuneration should be more closely tied tothe latter two, actual work content and output. The reasoning, in short, is that senior-ity wages lack incentives to improve (individual) productivity and that performance-linked remuneration raises entrepreneurship, improves risk-taking willingness andhas a positive impact on organizational efficiency measures such as speed of decisionmaking (Nikkeiren, 1995).

The vigorous demands for lowering seniority-linked promotion and pay structuresare rhetorical in the sense that “age” and “length of service” in a firm as wage-determining factors have already been progressively losing their importance over atleast the last 20 years. The average wage differential between the younger and olderage cohorts in the steel, basic materials, and chemical industry, for example, hasdecreased between 1970 and 1993 both for blue and white collar employees, thoughin varying degrees across sectors and with the exception of white collar employeesin the steel industry (Kokusai Sangyoˆ Rodo Kenkyu Senta, 1996: 158–161). Hence,to declare “seniority” to be the major culprit for therelative inflexibility of wagesystems in Japanese firms (Nikkeiren, 1995) is an exaggeration that disregards pastand current developments.

3.5. Rhetoric and restructuring

While a certain degree of functional flexibility and some changes in humanresource-related policies and practices are discernible, these new practices tend toexist alongside established routines. Certainly, few indicators speak of any “radicaltransformations” in the Japanese workplace at this point.

Perhaps this should come as less of a surprise when compared with other countriesunder similar circumstances. Most research for the UK and even the USA hasrevealed, for instance, that with regard to strategies to improve numerical, andespecially functional and financial flexibility, much less has been implemented todate than could have been expected judging from the intensity of debate over thepast 15 years (Legge, 1995: 154–168).

One important answer lies in the fact, as Legge, 1995: 85, notes, that publicly


espoused HRM strategies or programs, such as Nikkeiren’s proposal discussed earl-ier, are best understood as (idealistic) symbols and metaphors, providing a space orplatform for critically evaluating past and current practices, ideologized assumptions,and entrenched routines. Rather than providing a “blueprint” for quick action andimmediate results (restructuring), such rhetoric createstensionor conflict betweenwhat is and what could or should be. As organizations grow older, such conflict-seeking appears to be badly in need. On an individual level, for instance, both man-agers and regular employees alike rank an insufficient risk attitude as the majorbarrier to innovation within Japanese firms (Roˆdo Daijin Kanbo, 1996: 91). A newHRM strategy project then can enable actors to openly vent such criticism, both inthe “strategy making” and implementation phases (Fig. 17).

Politically, of course, it must be noted that proposals such as Nikkeiren’s Initiativeare not simply “objective”, value-free statements within a broader and principallyopen discussion. On the contrary, such an initiative also functions as a pace-setter,a signpost that henceforward any other contribution to the public debate cannotignore but instead will have to refer to. Thus, Nikkeiren has provided “rhetoricaltension” with a clear objective or trajectory in mind and in action. As such, itsproposal carries somewhat of a first-mover advantage in politico–strategic terms.

3.6. Concluding remarks

While it may be argued that Japan is thus missing the boat when it comes toadopting new technologies and adjusting to current and future economic exigencies,a comparison with relevant findings from other countries shows that the situation isnot so different there either. One could then deplore this slowness as an insufficientimplementation of strategic programs, rendering the utilization of firms’ humanresources ineffective (non-innovative) and inefficient (costly). However, this sectionhas argued that a rationalistic notion of strategy is hardly helpful in understandingthe mechanics of organizational change.

Fig. 17. The position of rhetorical models in change processes.


In this sense, Japan is not any different from other countries with their givenhuman resource systems. Strategy asrhetoric thus serves a valuable function every-where in instigating debate and reflection about the necessity of change. Providedthis rhetoric is able to provide the necessaryspace, both in physical and motivationalterms, to allow for such reflection and conflict to take place, Japanese firms couldonce again differentiate themselves in the future by developing intelligent space-oriented solutions. At the moment, however, such ideas are conceptual at best, andwe must contend ourselves with studying “best practice examples”, another way oflearning both for and from the future.

4. Restructuring of human resource management in the Japanese innovationsystem

4.1. Structural features of the Japanese R&D workforce

Innovations are determining the future competitiveness of firms as well as of coun-tries. Therefore, although the proportion of R&D workers among overall employmentis not necessarily very high, the employment system in R&D related activities mustbe regarded as a crucial part of the overall employment system. Moreover, humanresources are also the most important part of the innovation system in advancedcountries, as they incorporate the capabilities to achieve technological advances anddiffuse them throughout the overall economy.

In general, the Japanese R&D workforce complies with high standards when com-pared with Western industrialized countries. The proportion of R&D workers amongthe whole workforce is higher in Japan than in most Western countries (OECD,1997). Moreover, the general education level of Japan’s scientists and engineers isamong the highest in the world.

There are, however, also a number of structural features that still clearly dis-tinguish human resources in the Japanese innovation system from the R&D workersin Western economies. In general, Japanese R&D workers show a low degree ofvertical as well as of horizontal specialization. The first point is expressed by thefact that the ratio between main researchers and supporting personnel is much lowerin Japan than in European countries. Whereas in Europe, every main researcher ison the average supported by one more employee for matters such as administrativework, technical assistance and the like, in Japan two main researchers have to sharebetween them one such supporting staff (KGSK, 1997). By the second point is meantthat Japanese researchers and engineers, particularly in the business sector, are morefrequently moved between different organizational units and departments andassigned to new tasks than their colleagues in Western firms.

This high intra-organizational mobility, however, is accompanied by a relativelylow inter-organizational mobility of the Japanese R&D workforce. An internationalstudy of R&D workers in the business sector conducted around 1990 revealed thatonly 6% of those surveyed in Japan had already changed their employer at leastonce, compared with 35% in Germany and 43% in the United States (Ernst &


Wiesner, 1994: 104). In the public and university R&D sector, there is a relativelyfrequent exchange of personnel between organizational units that are attached to thesame upper level organization, e.g. the same ministry. This kind of exchange, how-ever, may still be regarded as an intra-organizational one in a broad sense, as minis-tries and agencies in Japan have a strong steering control over research institutionsthat are vertically linked to them. The exchange of personnel among publiclyfinanced R&D units that are attached to different upper-level organizations is, incontrast, a rare phenomenon.

Finally, the low degree of internationalization of the Japanese R&D workforcecan be mentioned as another structural trait. This applies not necessarily to the fre-quency with which Japanese researchers and engineers go abroad, but to the weightof foreign staff in the Japanese R&D workforce. Despite a considerable increase inrecent years, the number of foreign researchers and engineers living and working inJapan is still on a very low level. Only a few hundred enter the country every yearwith long-term assignments (KGSK, 1997: 486).

Altogether, the structure of the Japanese R&D workforce is evidently differentfrom those in Western industrialized countries. In particular, it is marked by a lowdegree of horizontal and vertical work specialization. A high extent of intra-organiza-tional mobility corresponds with a low degree of inter-organizational mobility anda low number of foreign R&D staff working in Japan. Recent work on knowledgemanagement has stressed the importance of smooth intra-organizational communi-cation in order to make the “knowledge spiral” work (Nonaka & Takeuchi, 1995:62–83). However, inter-organizational communication is important as well to assurea smooth transfer of technological knowledge. This particularly applies to upstreamactivities in the innovation process like research. Moreover, in the age of globaliz-ation the importance of a high degree of internationalization, which facilitates inter-national knowledge transfer, is increasing as well.

Subsequently, it will be discussed whether and to what extent human resourcemanagement in the Japanese innovation system is moving towards increased inter-organizational mobility and knowledge transfer as well as to a higher level of inter-nationalization.

4.2. Assessment of restructuring efforts in the 1990s

4.2.1. Restructuring in the public and university R&D sectorTwo recent events in Japanese science and technology policy have drawn much

attention: the enactment of the Science and Technology Basic Law in November1995, and based on this law, the approval of the Science and Technology Basic Planby the Japanese cabinet in July 1996. While the Law remains rather abstract andvague in its formulations, the Plan sets up specific goals and calls for a number ofconcrete measures in order to achieve an overall restructuring of the Japanese inno-vation system (Kagaku Gijutsu Kaigi, 1996). Among these measures, the plan todouble the Japanese public R&D expenditures until the year 2001 has received parti-cular attention. Because of the serious fiscal crisis the country is now facing, nobodyis expecting the full enforcement of this goal. However, the recent development


shows that there is a real commitment in Japan to increase public investment inR&D. Governmental R&D expenditures surged by 12.8% in the fiscal year 1995,resulting in an increase of the government share of overall R&D spending to 22.9%,recovering from an all-time low of 17.9% in 1990 (SoˆmuchoTokeikyoku, 1997: 6).

Another goal that was formulated in the Basic Plan specifically addresses the lownumber of foreign researchers in Japan. A threefold increase in the number of fellow-ships granted to foreign researchers by the Japan Society for the Promotion ofScience and the Science and Technology Agency is scheduled for the year 2000.

The efforts for increased public R&D funding and organizational restructuring,however, have already been prevalent in Japan since before the Basic Law and Planwere formulated. A number of programs to foster a more open and flexible allocationof R&D staff into projects have been launched since the early 1980s, with ERATO(Exploratory Research for Advanced Technology) the most well-known. At leastsome of these projects have been remarkably successful, indicating that there is alarge potential to increase the productivity and efficiency of Japanese R&D workersunder improved organizational conditions.

Moreover, there are several other initiatives ongoing in the 1990s in order torestructure public R&D in Japan and improve its efficiency. One of them incorporatesthe recent efforts to establish research universities that are exclusively focusing onpostgraduate courses and emphasize research activities in contrast to academic teach-ing. Two of these research universities are already in operation, one of them with afocus on information science and the other one on life science. Thereby, a new typeof university is created, as Japanese universities hitherto have been primarilyregarded as teaching and not as research institutions. This should enable researchersin these universities to focus their activities largely on research.

Another set of measures lies in the removal of administrative barriers in order toenable researchers from different institutions to join cooperative R&D projects.Recently these barriers that had existed to some extent as unofficial rules have beensignificantly lowered. Furthermore, some of the recent R&D projects initiated bygovernmental institutions are not only directed to researchers in institutions that areattached to the respective ministry, but also addressed to those in other publicR&D units. For instance, a recent MITI program is calling for joint university–industry research, and thereby is directed at university researchers although univer-sities are in the administrative sphere of the Ministry of Education. Altogether thereis a clear tendency in the 1990s to foster joint R&D projects among public R&Dunits as well as among public and business R&D, and thereby increase the inter-organizational mobility of the Japanese R&D workforce that has been describedabove as relatively low.

A recently discussed reorganization move that is heading in the same direction isan initiative to allow time-limited working contracts for researchers in public R&Dinstitutions. The necessary legislative steps have already been taken, providing theopportunity for research institutions to apply two such types of contracts as alterna-tives to the hitherto rule of unlimited contracts: one to invite renowned seniorresearchers, and one for young R&D workers as an opportunity for further postdoc-toral qualification. As the new system just started in June 1997, however, it is still


too early to assess to what extent it will be used in practice and how large its impacton the organizational routines in the respective research units will be.

Finally, the evaluation of public R&D facilities by outside experts has recentlybeen fostered. The idea behind this is again to encourage the R&D staff to take amore competitive and performance oriented attitude. As the idea of evaluation ofresearch institutes is in general rather new in Japan, however, the number of suchevaluations appears to be limited for the time being.

Although some of the measures mentioned above are based on very recent initiat-ives and are still in the course of discussion, the public R&D sector in Japan has inthe 1990s evidently become subject to far-reaching reforms. Not only has publicR&D spending been increasing, there have also been various measures taking placeto increase the inter-organizational mobility and the internationalization of theR&D staff.

4.2.2. Restructuring in the business R&D sectorWhat tendencies in human resource management can be seen in the other, and

much larger part of the Japanese innovation system, the field of business R&D? Incontrast to the public sector, R&D spending of Japanese firms has been stagnatingin the 1990s, as they have had to cope with constrained demand conditions on thedomestic as well as on the international market. The R&D staff in the business sector,however, has continued to increase throughout that period (SoˆmuchoTokeikyoku,1997: 22), indicating that firms regard their human resources, at least in the field ofR&D, as the most important. The need for reforms, however, is perceived in businessR&D as well. The low inter-organizational mobility and individual performanceorientation of business researchers and engineers have been pointed out as structuralweakpoints. This resulted in an extensive discussion about reorganization strategiesfor business R&D, particularly concerning human resources.

Accordingly, firms have reacted with various measures in order to reorganize theirR&D staff. In particular, three points are frequently mentioned in this context: firstly,the active recruitment of R&D workers with working experience, i.e. from otherfirms (chuto saiyo). Secondly, the loosening of formal office presence rules forR&D workers, primarily evaluating them not by the number of their working hoursor input efforts, but by their output performance (sairyo rodosei). Thirdly, the intro-duction of performance oriented, in contrast to seniority oriented, compensation sys-tems (nenposei).

Concerning the first point however, the number of job changers in technical fields,as well as in general, appears to remain on a low level as the seniority based compen-sation systems traditionally applied by large firms still set strong negative incentivesfor a change of the employer (Roˆdosho, 1996: 382). Interviews with senior R&Dmanagers confirm this view. It turns out that although an increasing number of firmsmay be interested in recruiting R&D staff from other firms, the external labor marketin that area is still very weak in Japan, restricting firms’ opportunities to hire suchstaff.

Moreover, and interrelated with the above, empirical research also shows thatconcerning the other two points, the scale and scope these new tools of personnel


management practices present, is much more limited than might be expected fromtheir frequent mentions in related reports. According to a survey among large andmedium-sized Japanese manufacturing firms in 1993, less than 10% of them hadadopted eithersairyo rodoseior nenposei (or both) at that time (KSKKK, 1994: 84).More recently, the percentage of such firms in similar surveys has been increasingto between 15 and 20% (Nihon Keizai Shinbun, 1998a,b). This indicates a risingimportance of these management tools in the Japanese business sector. However,they are still implemented only by a small minority of the overall number of firms.

Furthermore, even the firms who did introduce them mostly did only on an experi-mental basis (Hemmert, 1997). In large firms with several thousand employees inR&D units, they were typically applied only to a few dozen senior researchers. Inaddition, the new incentive schemes are often implemented only gradually. Thismeans for instance that mostly the compensation systems for researchers are notbecoming purely performance based, but just that the performance component issomewhat increased against the seniority component.

Altogether, the pace of reforms in human resource management of R&D inJapanese business firms appears to be not as fast as in the public R&D sector. Inprinciple, the new management tools discussed in this field point to a similar directionas in public R&D, aiming at more inter-organizational fluidity as well as at a strongerindividual performance orientation of researchers and engineers. Business firms,however, seem to be more restricted in implementing such reorganizations thangovernmental institutions, as they also have to pay attention to their overall systemof personnel management that is still mostly based on seniority-based compensationand long-term employment. This makes it difficult for them to create special careerpaths and compensation systems for their R&D staff. In addition, it also has to bekept in mind that as business sector R&D is commonly regarded to be much strongerin Japan than public sector R&D, the need for reforms may not be felt to be asurgent as in the latter field.

4.3. Conclusion

In the previous course of discussion it became evident that Japanese policymakers,bureaucrats and managers eventually have become serious with their calls forreorganization in the field of human resource management in the innovation system.Structural weaknesses like the low inter-organizational mobility and the low inter-nationalization of the R&D workforce are addressed by various restructuring moves.This applies particularly to the public and university R&D sector.

Notably, there does not necessarily have to exist a tradeoff between intra-organiza-tional and inter-organizational knowledge transfer. To the contrary, comparativecasework on a traditional, bureaucratic and a modern, network-type organization inJapanese basic research has shown that the latter outperformed the former not onlyin external, but as well in internal, communication (Kusunoki, 1998: 100).

Therefore, the structural reforms in the Japanese innovation system, namely in thepublic R&D sector, should make a positive contribution to enable the country tomaintain its position as a leading nation in technology in the future.


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the japanese employment system in transition 1 all authors were or are research associates at the...

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