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The deepening divide In Japanese employment: The increasing marginalization of contract workers as explained by path dependence, vested interests, and social psychology

The deepening divide In Japanese employment: The increasing marginalization of contract workers... CONTEMPORARY JAPAN 2022, VOL. 34, NO. 1, 13–41 https://doi.org/10.1080/18692729.2022.2028229 The deepening divide In Japanese employment: The increasing marginalization of contract workers as explained by path dependence, vested interests, and social psychology a b c d Patricia (Tish) Robinson , Catherine Sibala , Kiyohiko Ito and Vicki L. Beyer School of International Corporate Strategy, Hitotsubashi University Business School, Tokyo, Japan; b c Hitotsubashi University Business School, School of International Corporate Strategy; Shidler College of Business, The University of Hawaii at Manoa, Honolulu, U.S.A.; Hitotsubashi University Graduate School of Law, Tokyo, Japan ABSTRACT ARTICLE HISTORY Received 23 September 2021 In Japan, contract workers have never been on par with regular Accepted 3 October 2021 workers in terms of pay or benefits for similar work. However, the disparity between contract workers and regular workers has seen KEYWORDS a sudden and dramatic turn for the worse since 2018 when the Japan; modes of unintended consequences of the 2012 amendments to the 2007 employment; lifetime Labor Contracts Act took effect. Although employment numbers employment; contract may appear consistent over time, in actuality, as of 2018, nearly all workers; workplace inequality; labor relations; contract workers are being replaced every three to five years. This comparative institutional is because employers are choosing contract lengths that prevent analysis contract employees from qualifying under the 2012 amendments for ongoing, long-term employment. Accordingly, being forced to change jobs every three to five years in Japan’s seniority-based employment system is causing contract workers to fall further and further behind their regular worker peers in terms of wages, as well as job security, even as they are performing the same work. This is striking because the purpose of the 2012 amendments to the Labor Contracts Act was to bolster employment security and provide more equality between regular and contract workers. Instead, as more and more employees lose regular employment and fall into contingent and contract work due to corporate downsizing, the marginalization of contract workers in Japan increases, and their numbers expand. This paper proposes an interdisciplinary explanation of the evolution of contract work in Japan since 2000, drawing on: 1) a case study, and 2) labor market data. Employment in large, contemporary Japanese companies demonstrates an increasing employment divide between regular (lifetime) and non-regular workers, particularly contract workers (Hirano 2020; Shimanuki 2017). Regular employees and contract workers often perform very similar work, but for very different wages and benefits and under very different employment conditions (MHLW 2020). However, little theory has been developed to explain why the divide between regular and contract workers CONTACT Patricia (Tish) Robinson probinson@ics.hub.hit-u.ac.jp Hitotsubashi University Business School, School of International Corporate Strategy, National Center of Sciences, 2-1-2 Hitotsubashi Chiyoda-ku, Tokyo 101-8439, Japan © 2022 German Institute for Japanese Studies 14 P. ROBINSON ET AL. has suddenly and dramatically diverged in recent years. This divide between regular and contract workers is a major source of rising inequality in Japan and is thus an important social issue that merits public attention (Imai 2011; Kawaguchi and Ueno 2013; Ouchi 2015; Weathers 2004; Yashiro 2011). Accordingly, this paper combines and extends theory to provide a richer theoretical explanation for the situation of contract workers in contemporary Japan. This article is organized as follows. First, we describe the widening gap between regular and non-regular workers. Second, to illustrate the issues at play, we examine the turnover of contract workers in a single organization since the 2012 amendments to the Labor Contracts Act 2007 (労働契約法 [rōdō keiyaku hō]) went into effect in April 2013. Next, we summarize the laws regarding contract workers since 2000. We then explore the theoretical reasons for contract workers becoming disempowered relative to regular workers. We conclude the paper by proposing a richer theoretical explanation that extends and integrates different theories. This paper explores the evolution and persistence of long-term regular employment and argues that laws coming into effect in and after 2012 have inadvertently expanded the presence of non-regular employment, pushing these two groups of workers further and further apart economically. Drawing on comparative institutional analysis, political science, and social psychology, we propose that the evolution of contract work in Japan is a product of path dependence, vested interests and mutually reinforcing formal and informal institutions. The issue of contract workers in Japan is important because it illustrates growing job insecurity, as well as a growing economic divide between contract workers and regular workers. As an unintended consequence of the 2012 amend- ments to the 2007 law, most contract workers are forced by their employers to seek employment with a new company every three to five years, whereas prior to 2012, it was possible for a fixed-term contract worker to receive regular renewals with the same employer, allowing them to stay at one organization for signifi - cantly longer periods than now allowed by law (see Appendix 1 for various types of workers). The negative repercussions for contract workers of changing employment every several years in a seniority-based system are many, including: Contract workers can never gain more than three to five years of seniority, which affects “seniority-based pay”. Similarly, what experience they gain they cannot leverage effectively. There is no incentive for employers to invest in training or development for employ- ees who will be there only three to five years. ● Over time, as contract workers age, they become less competitive relative to younger counterparts and their situation becomes even more tenuous. The 2012 amendment was a “codification” of previous judicial decisions that had come to be accepted as the law in any event, so most employers were careful not to renew too many times. CONTEMPORARY JAPAN 15 The consequences of constant staff turnover present challenges for organizations as well: Organizations must divert resources to orienting and onboarding new contract workers regularly. Organizations lose productivity; in the final year of their contract, contract employees are essentially lame ducks, with no incentive to work hard. In addi- tion, much of their energy is often focused on seeking a new job to provide income starting when their current contract ends. ● Organizations lose institutional memory due to constant turnover. THE WIDENING GAP BETWEEN REGULAR & NON-REGULAR WORKERS Quantitatively and qualitatively, the distribution of regular (lifetime) and non-regular contract workers has changed over the past three and a half decades in Japan (Araki 2006; Hirano 2020; Imai 2011; Kawaguchi and Ueno 2013; Keizer 2009; Kitagawa and Teruma 2018; MacVaugh and Evans 2012). Quantitatively, the increasing divide between regular and non-regular workers is evident in the more than doubling of non-regular workers, from 15.3% of the Japanese workforce in 1984 to 36.7% in 2021, as shown in Table 1 below (Statistics Bureau, MIAC 2021), as the economy slowed after the burst of the bubble economy. Notably, during the Covid-19 epidemic, unemployment increased from 1.62 million unemployed job seekers in 2019 to 1.98 million in 2020. Among the unem- ployed, the number of laid-off workers (including workers who had reached retirement age) increased from 370,000 in 2019 to 590,000 in 2020, with most of those laid off being non-regular workers (MHLW 2021). Table 1. Employed Person by Type of Employment (1000 persons) 1984–2021. Regular Employee (A) Non-Regular Employee (B) (B)/{(A)±(B)} 1984/2 33,330 6,040 15.3% 1985/2 33,420 6,550 16.4 1990/2 34,880 8,810 20.2 1995/2 37,790 10,010 20.9 2000/2 36,950 13,130 26.2 2005/1-3 33,330 15,910 32.3 2010/1-3 33,810 17,140 33.7 2015/1-5 32,770 19,850 37.7 2020/1-3 35,080 21,530 38.0 2021/1-3 35,460 20,550 36.7 https://www.stat.go.jp/data/roudou/longtime/03roudou.html (Source: Statistics Bureau of Japan 2021) In terms of the quality of jobs, most premium (regular) jobs have gone to men, while the majority of non-regular jobs have gone to women, minorities and older workers. In 1990, around 3% of younger male workers in Japan were in non- Statistics Japan, Table I-Population aged 15 years old and over by Labor force status, employed person by industry, and unemployed person by industry, and unemployed person by reason for seeking a job, Statistics Bureau, Ministry of Internal Affairs and Communications, 30 January 2018) https://www.nippon.com/en/features/h00175/. 16 P. ROBINSON ET AL. regular employment. By 2020, that figure had increased fivefold for the 25–34-year -old age group and twofold for those aged 35–44 (Statistics Bureau, MIAC, 30 January 2018; Forrest and Izuhara 2013). In 2020, 32% of female workers aged 25– 34 were non-regular workers (Statistics Bureau of Japan 2021). Thus, non-regular employment status has emerged as a particularly serious issue among young people. In 2017, 25.8% of all workers (male and female) aged 25–34 and 28.6% of workers aged 35–44 years were non-regular workers (Statistics Bureau, MIAC 2018). Wages for regular workers and contract workers have diverged over time (Lise et al. 2014; Ohtake and Tsuru 2019). As can be seen from the 2019 data in Figure 1 (below), although wages start out about the same when workers are aged 19 or younger, wages reach 2,477 yen/hour for regular workers 50–59 years of age, compared to only 1,301– 1,308 yen/hour for contract workers of the same age. On average, over their working lives, regular workers earn 150% of what contract workers earn, often for the same work, with regular workers earning 2,021 yen/hour on average over their working lives, compared to contract workers earning only 1,337 yen/hour on average over theirs (MHLW 2020). Wages of Regular and Contract Workers by Age WAGES in YEN Below age Age 20-24 Age 25-29 Age 30-34 Age 35-39 Age 40-44 Age 45-49 Age 50-54 Age 55-59 Age 60-64 WORKER AGE Source: Japanese Ministry of Health, Labor, and Welfare, 2020 Regular Workers Contract Workers Figure 1. Source: Japanese Ministry of Health, Labor and Welfare, 2020. Statistics Japan, Table II-7 Employee, excluding executive of company or corporation, by type of household, relationship to the head of household, marital status, age, number of persons engaged in enterprise, industry, occupation, weekly hours of work, type of employment and status in employment (Statistics Bureau, Ministry of Internal Affairs and Communications, 30 January 2018, https://www.nippon.com/en/features/h00175/, accessed 24 October 2018). CONTEMPORARY JAPAN 17 A CASE STUDY ILLUSTRATING THE HIGH TURNOVER OF CONTRACT WORKERS The issue of turnover does not stand out in the growing number of non-regular workers because when contract workers end their contract and seek employment at another company, the number of positions and the number of contract workers stays the same in any given organization. However, under the surface of apparently consistent employ- ment numbers over time, most contract workers are being replaced every three to five years. Thus, an unintended consequence of the 2012 amendments to the Labor Contracts Act 2007 is that, contrary to the law’s intention, they have decreased the job security of all contract workers, who are forced to seek new employment every three to five years. We examine the turnover of contract employees using an anonymized, fairly typical organization in Tokyo in the educational service industry with approximately 40 employ- ees as an example. It shows that while the number of non-regular workers appears to stay the same, the organization experiences 100% administrative staff turnover within three years, because the staff are all contract workers. The case study organization depicted in Table 2 illustrates how the 2012 amendments to the Labor Contracts Act of 2007, contrary to its intention of providing longer, continuous employment for contract employees, have in practice served as a vehicle for widening the gap between regular workers and contract employees through increased job insecurity. The organization studied in Table 2 is by no means unique vis-à-vis its differential treatment of regular and contract workers; such approaches have been observed throughout the case study organization’s educational service industry sector more broadly, as well as in other sectors. Prior to the 2012 amendments to the Labor Contract Act 2007, the organization depicted in Table 2 typically did not offer regular worker status to professional office staff: all were engaged as contract workers whose contracts of employment specified the end date of their contract. Contract workers were on renewable contracts, whose total accumulated length could extend to between 10 and 20 years. Following the 2012 amendments coming into force in April 2013, the organization did not permit workers who had reached the end of their contractual period to immediately and contiguously sign a new employment contract. Instead, a worker wishing to continue their employ- ment with the organization would be required to take a six-month “break”, after which they could be re-hired to their former position on a new contract, with commensurate benefits such as the number of leave days re-setting to zero, the same as for a brand-new Table 2. Turnover among Contract Workers in a Typical Small Organization in Tokyo. Year (beginning Total Number of Administrative Number of Staff who left that year Number of Staff who April 1) Staff (all non-regular) because their contract ended joined that year 2016 17 5 7 2017 19 6 7 2018 20 4 7 2019 23 11 12 2020 24 6 4 2021(as of 22 1 1 July 2021) 18 P. ROBINSON ET AL. employee. Under this system, it was even possible for the worker to continue working for the organization during their “break” as a kind of “independent contractor,” as long as there was discontinuity between periods as an employee of the organization. However, around the time the consequences of the 2012 amendments began to be fully seen (in 2018), the organization implemented a stricter policy under which workers reaching the end of their contract were required to take a complete break of at least 12 months, during which they could not have any kind of working relationship with the organization. In effect, this policy worked to drive away previous workers, most of whom could not afford to take a one-year “break” from paid employment, and so had to find a job elsewhere. Over the four-year period from 2018–2021 (July), the case study organization saw a staff turnover rate of between 22%-44% per annum; almost all staff who left did so involuntarily, due to the expiration of their contract period. Of the 21 staff members who were employed with the organization at the beginning of July 2018, only two remained as of Summer 2021 (and one of these was due to leave the organization by the end of 2021 when his/her contract ended). The contracts of all these workers were drawn up to reach but never exceed five years in length, enabling the organi- zation to follow the letter of the law, while at the same time making it impossible for workers to become eligible to apply for ongoing employment by exceeding five years’ continuous employment. CHANGES IN LAWS REGARDING CONTRACT WORKERS SINCE 2000 In 2003, amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act (労働者派遣事業の適正な運営の確 保及び派遣労働者の保護等に関する法律 [rōdōsha hakkenjigyō no tekiseina unei no kakuho oyobi hakkenrōdōsha no hogotō ni kansuru hōritsu) 1985 (Article 40–4) obliged employers to “offer” a dispatched worker a regular employment contract (koyō mōshikomi gimu) in the case of the continuation of the dispatched worker’s contract beyond the maximum three-year legal period for non-professional or non-technical occupations (Watanabe 2012, 23–50). However, employers easily circumvented this requirement by redefining jobs, and no penalties were imposed on the employer for accepting temporary workers in breach of the law (Nakano 2003). In March 2004, the worker dispatching period, which had previously been severely limited for most occupational categories, was extended, allowing firms to make greater use of dispatched personnel instead of regular employees (JILPT 2011/ 2012/2012). With the aim of helping Japanese companies to remain globally compe- titive and make Japan’s economy more flexible and responsive, the law permitted companies to give temporary workers lower wages and fewer benefits than regular employees who performed equivalent work. Companies reacted to labor market deregulation by categorizing many new jobs as temporary ones. Also around this time, the increasing use of fixed-term contracts, along with a number of judicial decisions, led to the introduction of the Labor Contracts Act 2007, which took effect from April 2008. http://factsanddetails.com/japan/cat24/sub156/item907.html. CONTEMPORARY JAPAN 19 The 2012 Amendments to the Labor Contract Act 2007 In 2012, then-Prime Minister Abe announced a number of workstyle reforms, which included a goal (subsequently revised downward) of having 30% of management posi- tions occupied by women by 2020. The idea behind these reforms was to introduce changes that would bring about a labor market environment suited to the demographic distribution that Japan had been experiencing since around the mid-1990s. Until this point, there were workers being employed continuously by the same organization via contiguous short-term contracts with no job security, no pension, no retirement benefits and less pay than regular employees, only to come into work one day and be told that their contract was no longer going to be renewed. In one example, a contract worker joined a company in 2000 and worked there for almost 17 years, renewing their initial 3-month contract more than 60 times, before losing their job when they were told in December 2017 that their contract would not be renewed (Kyodo 2018). In 2012, the Japanese government revised the Labor Contracts Act 2007 to introduce Article 18, which stipulates that workers who have worked on renewed fixed-term contracts for a period exceeding five years are entitled to demand contract renewal without a termination date. While not offering regular “lifetime” employment (seishain) status, this granted non- regular employees employment stability similar to that of their regular employee colleagues, at least giving them the security of ongoing employment. This was said to be an attempt to recognize such temporary workers as the equal of regular employees. The Japanese Ministry of Health, Labor, and Welfare (MHLW) drafted the 2012 amend- ments as requiring every fixed-term contract to contain a provision explaining whether or not the contract could be renewed, and the grounds for renewal or non-renewal. The MHLW intended that if the job was going to be continuing, then the person in the job The Labor Contracts Act (LCA) 2007 was amended in August 2012 to prescribe the following three new rules regarding workers employed on contracts with fixed terms: 1. In the event that a fixed-term contract concluded on or after the day the amendment came into effect has been repeatedly renewed for more than five years in total, the worker in question is entitled to have their contract converted to an open-ended contract, should the worker request it (Article 18). 2. In the event that a fixed-term contract has been repeatedly renewed and is in effect what can be regarded as an open-ended employment arrangement, or the fixed-term contract worker has reasonable grounds to expect the contract to be renewed, refusal to renew the contract is not permitted when the refusal is deemed lacking reasonable grounds and socially inappropriate (the fixed-term contract is deemed to have been renewed) (Article 19). 3. It is prohibited for an employer to subject a worker whose contract has a fixed term to unreasonable differences in labor conditions between said worker and the open-ended contract workers employed by the same employer (Article 20). Companies use fixed-term contracts to afford more flexibility, particularly in the case of older workers. The pension age has risen to 65, but many companies with wage systems based on tenure do not want to raise their retirement age beyond 60 or 62, because they feel that older workers are not as valuable as younger workers, and they do not want to have to keep giving those workers raises and paying them benefits. The government agrees that older employees may not contribute as much value, but it also has an interest in keeping those workers employed until they reach the pension age. After all, if senior citizens are not employed, they could wind up needing government assistance. So, under Article 9 of the Stabilization of Employment for Older Workers Act 1971, the government made it possible for companies to keep their retirement age at 60 if the company employs a rule that they will re-hire retired workers on fixed-term contracts until those older workers reach the pension age. This allows companies to re-hire the workers on cheaper terms. In reality, this is a form of government-sanctioned age discrimination. In the case of Tsuda Electric Motors v. Okada (2012), Tsuda Electric was a company with retirement age of 60 that automatically rehired retirees for one year and then, based on their performance score, gave them a further contract for full or part-time work. Tsuda Electric didn’t give Okada a further contract because they said his performance score was less than 0. At issue was whether Okada was entitled to a further contract. The Holding was that Okada was entitled to a further contract. The rationale was that the company had publicized its conditions for rehiring retirees and in fact Okada had a performance score of 1 (the company erred in saying his score was less than 0). Okada was entitled to expect to receive a contract to work for 30 hours per week. 20 P. ROBINSON ET AL. should be allowed to continue in that job. Therefore, technically under the law, it was not legal for the employer to refuse to renew a contract simply because the contract worker was coming up to the five-year mark. Employees first become eligible to claim a right to ongoing employment based on the 2012 amendments on 1 April 2018. However, many employers, rather than putting into place frameworks to facilitate the change, began introducing measures that aimed to prevent any of their fixed-term contract employees from becoming eligible for ongoing employment. These measures included non-renewal contract clauses and requiring fixed-term contract employees to take a six-month break from employment before reaching five years of service, only to be hired again later into the same position as a technically new employee. This effectively restarted the five-year clock, thereby ensuring the contract employee did not become eligible for an open-ended contract, as our case study organization illustrates. These actions, while remaining within the letter of the law, violate its intention (Hayata 2016). However, as is the case with many new Japanese laws, the 2012 amendments to the Labor Contracts Act of 2007 contained no penalties for violations. The MHLW perhaps hoped that aggrieved employees would enforce the law by going to either the Labor Tribunal or the Labor Standards Bureau. Also in 2013, in an environment characterized by an aging population and an ever- increasing social security burden, the Japanese government increased the minimum age for receiving social security pension payouts, from 60 to 65, a change implemented progres- sively at the rate of a one-year increase every three years from 2013 until 2025 for men and from 2018 until 2030 for women (Schreiber 2013). Due to concerns over the increased costs associated with having seniority-linked pay under the lifetime employment system, the changes to Article 9 of the Stabilization of Employment of Elderly Persons Act 1971 (高年齢者 等の雇用の安定等に関する法 [kōnenreishatō no koyō no anteitō ni kansuru hō]) allowed employers to keep their mandatory retirement age at 60 with the proviso that they should re-hire retired workers on fixed-term contracts until they reached the pension eligibility age of 65 (Martine and Jaussaud 2018). The 2015 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 set an upper limit of three years for a utilizing company to retain a dispatched worker in the same company division, after which the company must offer direct employment to the worker, engage the worker in another company division, or make efforts to provide employment opportunities to the worker before replacing them with a different worker. The amendments also confirmed the 2012 amendment stipulating that a utilizing company that knowingly accepted a dispatch worker under arrangements that constituted a serious breach of the Act would be deemed to have offered to the worker a direct employment contract (Herbert Smith Freehills 2015). Nonetheless, the overall effect of the amendments has been to benefit dispatch companies and their clients, allowing them to use temporarily dispatched labor even more freely. Dispatching companies and employers benefitted in spite of the original purpose of better protection of workers. In 2012, amendments were made to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 to offer better worker protections such as stricter liability (including deemed employment) for the agency and the client company in the case of breach, and, in 2015, further amendments were made to remove distinctions between specialists and generalists, as well as (in effect) to eliminate the three-year limit on contract length. A point of note is that Heizo Takenaka, a proponent of deregulation since his time as a member of the Koizumi Cabinet and now the Chairman of Pasona Group Inc., Japan’s largest worker dispatch company, was a member of the Industrial Competitiveness Council, an advisory committee to the Abe Government that introduced these amendments. CONTEMPORARY JAPAN 21 The Law on Equal Treatment of Workers The Improvement of Personnel Management and Conversion of Employment Status for Part- Time Workers and Fixed-Term Workers Act 1993 (短時間労働者及び有期雇用労働者の雇 用管理の改善等に関する法律 ; [tanjikanrōdōsha oyobi yūkikoyōrōdōsha no koyō kanri no kaizentō ni kansuru hōritsu]) and its 2018 amendments aim to facilitate the equal employment treatment of regular and contract workers, including in the case of the latter furthering their conversion to regular employment (as stated in Article 1 of the 1993 Act). Key provisions of the Act as they relate to the themes of this paper include: ● Employers must create contract terms that ensure the differences in the treatment of standard (regular) and fixed term (contract) workers in terms of pay, bonuses and other employment conditions are not unreasonable (Article 8). ● Employers must not subject a contract worker who is essentially doing the same work as a regular employee to differential treatment vis-à-vis pay, bonuses and other employment conditions on the basis of the worker’s status as a contract worker (Article 9). ● Employers must strive to provide equal pay for contract workers and regular workers, taking into account job descriptions, job performance, ability and experience (Article 10). ● Employers must implement for their contract workers the same education and training they implement for regular workers with the same job description, taking into account job description, job performance, abilities and experience (Article 11). ● Employers looking to hire a regular worker with standard employment status must make known to their contract workers the pay and conditions for the position, and must provide contract workers with an opportunity to apply for the position. Employers must also take measures to further the conversion of contract workers to regular workers (Article 13). Court Decisions In 2020, Japan’s Supreme Court made a number of rulings in relation to the 2012 amendments to the Labor Contracts Act 2007, including its central premises of equal pay for equal work and prohibition of unreasonable unequal treatment. While the set of decisions acted to narrow some of the gap between regular and contract workers on matters such as pay and certain allowances, it kept in place the rigid two-tiered Japanese labor market and did very little to address the fundamental concern of job security for contract (and other non-regular) workers. ● Japan Post: The court ruled that contract workers should receive allowances for housing, family members and holiday and sick leave similar to those provided to regular employees. ● Osaka Medical College: Overturning the ruling of a lower court that awarded JPY1.09 million in mostly unpaid bonuses to a former female employee hired by Osaka Medical College under a one-year renewable contract on an hourly wage, the 22 P. ROBINSON ET AL. Supreme Court ruled that not giving a bonus to a per-hour worker tasked with light work and subject to no job rotation did not constitute the unreasonable disparity the law prohibits. Tokyo Metro: The Supreme Court overturned a lower court decision that had granted partial pension payments to former fixed-term contract employees who had worked for a decade with Metro Commerce, a Tokyo Metro subsidiary. THEORETICAL PERSPECTIVES ON THE INCREASE OF CONTRACT WORKERS Institutional theory suggests that economic activities and business practices are socially embedded and that economic efficiency and success are socially constructed and vary significantly across social contexts (see for example, Donzé and Smith 2018; Godard 2020; Granovetter 1985; Hall and Soskice 2001a; Hamilton and Biggart 1988; O’Reilly et al. 2015; Sugeno and Araki 2017; Sugeno and Yamakoshi 2014; Whitley 1992, 2003; Witt 2014). Institutional logics in the form of shared beliefs or “rules of the game” encompass both formal institutions like laws, contracts, etc., and informal rules such as norms, customs and institutionalized practices (North 1991; Aoki 2000, 143 2001; Aoki et al. 2007). These formal and informal institutions shape organiza- tions and organizational practices in various ways that can be positive or negative, as well as restrictive or expansive, and distinguish the Japanese labor market from other market economies. This paper explores three institutional forces that affect changes across formal laws and informal institutionalized practices, and across norms and customs as they relate to contract workers: 1) Path Dependence; 2) Vested Interests and Power; and 3) Institutional Complementarities, especially in the area of mutually reinforcing norms. An institution is a shared, self-sustainable, summary expectation held by agents of a way the games are repeatedly played in a certain domain. That is, an institution is a social device to coordinate the expectations of the agents in a domain (e.g. organizational transaction, etc.) (Aoki 2000, 143). Aoki advanced Douglass North’s definition of institutions as the “rules of the game” by defining an “institution” as a shared understanding of all the players about how the game is played in equilibrium. North famously asked, If institutions matter, why can’t the best institutions from better- performing countries be learned and adopted by other countries? (North 1990), and argued that even if good formal rules were borrowed from abroad, since indigenous, informal rules such as norms and customs are often taken for granted and thus less visible and more difficult to change, a tension may be created between the two which makes the borrowed institution neither enforceable nor functional. The existing “rules of the game” shaped the incentives of the players, ultimately having the potential to shape new rules as well. For example, formal institutions such as governmental laws and regulations constrain organizations and organizational practices, as opposed to informal institutions, represented by the norms, knowledge base, and practices of organiza- tions and shared norms and unconscious notions of legitimate behavior that shape organizational interactions (e.g. Biggart and Guillen 1999; Fligstein 2001; Granovetter 1985). Aoki describes institutional complementarity as a relation- ship in which all parties share expectations or beliefs, which effectively constitute the “rules of the game” in various social and economic domains. These “rules of the game” reflect an equilibrium state that has been attained in each of these domains, with the equilibrium attained in one social domain being complementary with equilibria attained in other domains; it was not in the interest of any individual economic agent to deviate from the “rule” (Aoki 2002). Institutional arrangements demonstrate varying influence on firms’ structure and behavior across countries (Granovetter 1990; Whitley 1992). These institutional arrangements have been explored in economics (Aoki 1996, 2000; North 1990), in political science in the multiplicities of political approaches to solving similar problems (Hollingsworth, Schmitter, and Streeck 1994; Polanyi; Streeck 1991, 1995), and in comparative sociology (Aguilera and Jackson 2003; Biggart and Guillen 1999; Dobbin 1994; Guillen 1994; Hamilton and Biggart 1988; Hollingsworth, Schmitter, and Streeck 1994; Orru, Biggart, and Hamilton 1997; Smelzer and Swedberg 2005; Whitley 1992, 2003). CONTEMPORARY JAPAN 23 Triangulating theories to explain the evolution of contract work in Japan From an economic perspective, Aoki’s (2001) argument regarding business practices in Japan can be extended to contract work. This paper builds on his perspective by combining and adding to insights on path dependence, vested interests, complemen- tary formal and informal institutions (“rules of the game” in the form of laws and norms and customs), as well as social embeddedness. Starting with path dependence, contract work in Japan is predicated on a two-tiered system of lifetime employment for regular workers in large companies, buffered by non-regular workers who bear the brunt of fluctuations in the economy. Complementing this economic perspective from a political science perspective, Watanabe (2012) and Miura (2005) explore labor rela- tions in terms of the role of vested interests in the political process. Further, comple- menting these from a social psychology perspective, Jeffries et al. (2012) show that various cultures’ rules of engagement shape when and where it is considered appro- priate to side with (or criticize) those in power versus those without power (Hornsey et. al. 2018; Ariyanto et al. 2006, 2010; Douglas and Sutton 2011; Hornsey et al. 2005, 2007, 2012; Hornsey and Imani 2004; Sutton et al. 2006). All of these forces come together in a way that is mutually reinforcing. In the following sections, we explore how various formal and informal institutions have served to impede overcoming the employment divide between regular and non-regular workers. Figure 2 lays out the three complementary theories that help illuminate the evolution of contract labor in contemporary Japan. So why didn’t Japan do away with lifetime employment when economic growth slowed, global competition increased, and companies needed to cut labor costs? Specifically, why didn’t Japan eliminate those parts of the law that support lifetime Figure 2. Path Dependence, Vested Interests and Institutional Complementarity: Theories that complement each other to explain the evolution of contract work in Japan. Source: Authors. 24 P. ROBINSON ET AL. employment, such as the doctrine of abusive dismissal, to replace them with other worker protections? Here, we explore path dependence, vested interests, institutional complementarity, and lack of voice and unintended consequences as partial explanations. Path Dependence and contract work’s relationship with lifetime employment in large Japanese firms This section examines how the two-tiered employment system evolved in large Japanese companies in the context of path dependence. Path dependence posits that “where we go next depends not only on where we are now, but also upon where we have been” (Liebowitz and Margolis 2000, 981; see also Bebchuk and Roe 1999). It sheds light on comparative-historical analyses of the development and persistence of institutions, parti- cularly in the area of institutional “imprinting”. Institutional imprinting posits that the conditions at the founding of a practice, organization or industry, leave an indelible and enduring mark (or imprint) on organizational practices and outcomes over time, even as external environmental demands and conditions change and require new and different practices to be maximally efficient (Stinchcombe 1965; Marquis and Tilcsik 2013). Lifetime employment exemplifies path dependence in providing an example of how the current evolution of HR practices in Japan are pre-disposed or constrained by existing practices. Gordon (1985) and Aoki (1996) have documented that “lifetime” employment (along with seniority-based compensation and promotion systems) was not just the result of a unilateral rationalistic design by management to prevent the frequent mobility of skilled workers. It was partially the result of trilateral interactions involving the govern- ment aiming to pacify labor disputes and eliciting workers’ cooperation toward manu- facturing during World War II. Workers in the 1920s and 1930s organized themselves in protest against management, not from class interests, but rather as a result of aspirations of being recognized as “equal members of their enterprises” (Aoki 1996, 193). After the war, ad hoc adaptation to severe labor shortages led to job sharing and ambiguous job demarcations. Eventually, there emerged an unintended fit between evolving organizational practices and the institutional framework the government had initially developed for a different purpose, i.e. the centralized control of resource alloca- tion (Aoki 1996). The lifetime employment system in Japan saw workers hired straight after completing their formal education and guaranteed a job right through to the company’s retirement age, in return for the employees’ loyalty and devotion to the employer. Under the seniority system, all employees moved steadily up the corporate hierarchy (and attached pay scale) with each year of service. They were relatively underpaid in the early years of their career with the implicit social agreement that they would be guaranteed a wage increase for every year of service regardless of whether their actual productivity also increased over time (Lazear 2009; Kimura et al. 2019). This system encouraged employees to stay with one company throughout their career, because employees who left a company in mid-career There was an “unintended complementarity between the evolving organizational mode and institutional framework. . . of institutions created by the government in the pre- and mid-war periods. . .(which) were originally created for the purpose of mobilization and central allocation of financial and labor resources by the government” (Aoki 1996, 4). CONTEMPORARY JAPAN 25 were unlikely to find another position that compensated them at a similar level of salary, due to the lack of a well-developed secondary labor market. One of the perceived benefits of this system was that it allowed the organization to fully utilize the expertise employees built up over years. The lifetime employment system served to secure for big companies sufficient skilled labor to achieve high productivity and efficiency during high economic growth (Araki 2006). This system lengthened workers’ average number of years of continuous service and enhanced high-level technical skills, since people needed to stay with a company long-term in order to get higher pay and promotions. During the high economic growth of the postwar period, lifetime employment and seniority-based pay inhibited socio- economic disparities, which resulted in the growth of a large, well-educated middle class. Lifetime employment limited labor mobility and precluded the development of a secondary labor market similar to that seen frequently in other developed countries (Doeringer and Piore 1985). However, with the collapse of the economic bubble and the intensified global competition of the 1990s, large Japanese companies faced intense pressure to reduce labor costs. The American Chamber of Commerce in Japan advocated, as an efficient way to deal with economic recession and volatility, doing away with regulations upholding lifetime employment because regular (lifetime) employment reduces the flexibility and speed a company needs to adjust its workforce to changing economic conditions. However, rather than eliminating lifetime employment, many large Japanese firms allowed their lifetime employee labor force to decline through attrition and reduced hiring. In addition, they increased their use of various forms of contingent workers in order to keep labor costs in check and remain economically competitive, as can be seen in the increased use of non-regular workers from 15% in 1984 to 37% in 2021 (Statistics Bureau of Japan 2021). Path dependency within companies was reinforced by vested interests perpetuating and exacerbating the disparity between regular and non-regular workers within compa- nies, drawing on Aoki’s (1996) argument that institutions and practices within the Japanese business system are held in place by vested interests. In companies, vested interests took the form of management interests that were prioritized over shareholder and contract worker interests. Aoki (1996) argued that the Japanese institutional frame- work, in particular, is built in such a way as to protect the incumbents committed to existing organizational forms by restricting the entry of outsiders and mitigating compe- titive pressure on insiders to exit. Specifically, rather than reduce labor costs by doing away with lifetime employment, large Japanese firms have adjusted their operations (Usui and Colignon 1996) by: (a) reducing the number of new hirings and stop filling vacancies, (b) early retirement programs, (c) dispatching excess employees to affiliated companies until hard times are over, (d) increasing use of contract workers/temps/other forms of non-regular workers that can be more easily let go. This essentially forces non-regular workers to serve as the buffer that is hired and laid off as the economy demands. As shown in the case study featured earlier in this article, 100% of the administrative work in the organization was done by contract workers. 26 P. ROBINSON ET AL. Similarly, off-the-record interviews with HR managers at major companies in Japan indicate that regular and contingent employees in large Japanese firms have ended up often doing exactly the same or similar work for very different pay. Thus, path dependency illustrates how the current employment system evolved and why current practices are difficult to change. The following section explores the balance between employers and unions in the labor policy-making process following the bursting of the Japanese economic bubble in the 1990s and how it is related to vested interests. It then sets out some of the unintended consequences of the 2012 amendments to the Labor Contracts Act 2007 that may have occurred due to the exclusion of parties such as unions in the policy making process. Vested Interests in the Making of Labor Policy Vested interests are noticeable in the making of labor policy (Kume 2005). For example, in the 1995 proposal by Nikkeiren (Japan Federation of Employers’ Associations) to maintain lifetime employment practices for a smaller core of regular workers, while increasing the ratio of non-regular workers. This was intended to allow Japanese companies to reduce labor costs and expand employees’ functional flexibility to support Japanese companies being able to compete more efficiently. Nikkeiren argued that it was difficult for compa- nies to reduce their own regular workers’ wages (Watanabe 2012, 27; Hamaguchi 2003, 2004). Vested interests were further visible in limiting policy input during the Koizumi administration (2001–2006). In 2001, the Council on Economic and Fiscal Policy (Keizai Zaisei Shimon Kaigi, CEFP), at the time the main Cabinet council tasked with formulating basic economic and fiscal policies (including labor-market policies), limited participation and deliberation in its activities to the Prime Minister, the Minister of Finance, the Minister of Economy, Trade and Industry and prominent corporate leaders such as Hiroshi Okuda (the former CEO of Toyota Motor Corporation and the former chairman of Nikkeiren and later Keidanren), along with labor scholars and economists who supported the deregula- tion of the Japanese economy (Watanabe 2012). As a result, Japanese corporate interests were represented strongly in the deregulation policy-making process, while labor unions were not. Eventually, as the Cabinet-level Labor Policy Council came into effect in 2001, employers and public representatives of the Labor Policy Council gained the ability to hold meetings without the labor unions present if labor unions threatened to boycott Labor Policy Council meetings. Lack of Voice for Contract Workers: Union and Employer Representation in Labor Policy Making In the post-war period through 1989, Japanese union representation of workers was traditionally rather weak, in part because Japanese unions have been largely enterprise or company-specific unions and so tend to be focused on corporate Prior to 2001, labor unions possessed veto power in policy deliberation in the advisory councils of MHLW. With this veto power, labor representatives in the advisory councils were able to block bills consulted on by MHLW by not sending any representatives to attend the meeting (Miura 2005, 174–175). In the 2001 ministerial reorganization of MHLW, Labor Representatives in the advisory councils also lost their veto power. CONTEMPORARY JAPAN 27 economic performance rather than on the interests of workers across companies (Araki 2002, 6–14; Rebick 2005, 13, 23; Asahi Shinbun 2006). Enterprise unions divide workers by company and thereby reduce the collective political power of workers across an industry as a whole, relative to employers (Crump 2003). If enterprise unionism initially had been organized on the principle of job-control industrial unionism, it would have resisted any move to destroy specific job rights (Aoki 1988, Ch. 3). Enterprise unions are further weakened by Japanese companies’ ambiguous job descriptions, which have made it easier to let non-regular workers go because it is easier to replace one worker when the remaining workers can be assigned to a position that does not have a specific job description. Moreover, job rotations across functions make it difficult to identify an individual’s specific contributions to the organization. In addition, many union members progress through company ranks to join management, creating an inherent conflict of interest, such that if active union members aspire to promotion to management in the future, they may be unwilling to challenge management on behalf of vulnerable workers during their time in the union. While union representation of workers in the political process is weak, non-regular workers, who are usually excluded from enterprise-based unions, have even less voice in the policy-making process. Rengō (The Japanese Trade Union Confederation) represents union members to MHLW, while Keidanren represents employers to MHLW. Keidanren moves ideas from MHLW downwards throughout its constituencies and Rengō does the same through its constituencies. However, there is no body that represents non-unionized workers to MHLW, leaving non-regular workers with no voice in the regulatory process (Watanabe 2012). Based on their exclusion of non- regular workers from union membership, Rengō traditionally did not even survey contract workers to find out what such workers wanted or needed. Furthermore, Rengō did not actively organize non-regular workers because unions were afraid that non-regular workers might replace regular workers and thus tended to consider “non- regular workers to be a buffer to economic recession” (Araki 2002, 10). As a result, other than the Labor Standards Bureau, there is no one representing contract workers in the regulatory process in Japan. In addition, the diversity of member unions’ opinions diluted unions’ ability to clearly express a unified position against labor deregulation (Kume 2005, 33, 100–101, 140–141). Consequently, labor unions were not included in the labor policy-making process in the Sōgō Kisei Kaikaku Kaigi (Council for Regulatory Reform, a deregulation committee) in 2001 nor in the CEFP. Moreover, the weak political power of labor unions resulted in substantial changes in labor-policy making structures by employers. In 1989, Rengō (The Japanese Trade Union Confederation) became the largest national union federation, as a result of merging 1) the private sector Rengō (the former Dōmei, Japan Confederation of Labor), with 2) the public-sector unions of Sōhyō (General Council of Trade Unions), previously the largest national union federations. For example, private-sector unions in internationally competitive, export-oriented industries supported the introduc- tion of temporary agency work in 2003 (Hamaguchi 2004, 79), even as other public-sector unions and private-sector unions in protected industries opposed the deregulation of temporary work (Sako and Sato 1997, 18). The advisory councils usually strove to achieve compromises between the policy requests made by both laborer and employer representatives by combining deregulatory and protective measures. However, employers relied on the Deregulation Committee to avoid such time-consuming decision-making and to promote more rapid implementation of the government’s labor-market deregulation policies (Miura 2005, 176). 28 P. ROBINSON ET AL. Unintended Consequences of Amending the Contract Labor Act The government certainly intended to improve the situation of non-regular workers via the 2012 amendments to the Labor Standards Acts 1947 (労働基準法 [rōdō kijun hō]), the Labor Contracts Act 2007 and the 2015 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985. However, in practice, these amendments appear to have achieved the exact opposite of their intended effect: the introduction of the 2012 amendments has spurred many employers to put in place measures and practices that place upper limits on a non-regular worker’s tenure, where previously such limits had not been formally imposed. Specifically, instead of converting contract workers to regular employees, many employers have terminated contracts just before the three-year or five-year mark. Thus, instead of having short-term contracts that were repeatedly renewed over long periods (even decades) as had been done in the past, now contract workers are forced to change employers every three or five years. Accordingly, restricting employment tenure for non-regular workers, particularly in a country with a limited secondary labor market, has significantly increased employ- ment insecurity. Employers are less likely to train contract workers. Also, constantly having to start over in a new company greatly reduces a worker’s opportunity to gain seniority. Finally, as contract workers age, these older workers will likely become less attractive to hire than younger workers, because their experience may not be sufficient to compensate for the relative youth, efficiency and productivity of younger workers. The lack of penalties on employers for violating the spirit of the law means that employers perceive little downside to having a periodic turnover in certain staff, focusing instead on the savings in staff benefits and salary. Figure 3 illustrates these unintended consequences. In effect, the diversification, deregulation and liberalization of Japan’s labor market has resulted in exacerbating a “two-tier” employment system and in widening instead of narrowing the gap between those inside the system (regular workers) and those outside the system (here, contract workers). In order to be able to adjust to changes in economic conditions, many Japanese companies only employ a certain core cadre of regular employees and supplement those with fixed-term contract workers who allow the company flexibility for adjustments. As economic volatility and prolonged recession made the future uncertain, the deregulation of the labor market has seen a rise in the use of temporary, contract, and dispatched workers in the Japanese workforce. Accordingly, the workplace environment at large companies has gradually increased the use of fixed-term employment contracts without substantial social protection for the resulting non-regular workers. Older workers in particular, who must simulta- neously deal with a possibly delayed retirement due to the rising age for pension eligibility (see the section Changes in Laws Regarding Contract Workers Since 2000), have been affected adversely by this system. Were MHLW more thorough in their audits, they would conduct broad-spectrum compliance with all labor laws, asking to see all fixed-term contracts and reviewing them regarding how they are being renewed or not renewed and how many contract workers were let go right at the three-year mark. The intention was that employers not be allowed to terminate contract workers just at the point those contract workers would be legally eligible for regular employment. CONTEMPORARY JAPAN 29 Figure 3. Unintended Consequences regarding Contract Workers. (B: Balancing Loops that balance conditions out. R: Reinforcing Loops that exacerbate a problem or reinforce a positive outcome.) Source: Authors. Institutional Complementarities and Social Psychology Finally, to address why non-regular workers don’t “speak up” and voice their concerns and needs, we draw on institutional complementarities around social psychology norms to explore mutually re-enforcing norms that coalesced to keep contract workers from speak- ing up and bringing about change. Under the 2012 amendments to the Labor Contracts Act 2007, it is not legal for an employer to refuse to renew a contract simply because it is approaching the five-year mark. If a contract worker’s contract is not renewed without the company providing a sufficient reason, the contract worker has a right to go to the Labor Tribunal, a low-cost form of judicially-sponsored mediation. To encourage their use by workers, Labor Tribunals are set up to make at least some concession to workers who approach them. It is rare that the Labor Tribunal decides wholly in favor of either the employer or the worker: the decision is almost always a compromise, with only the weight of the damages signaling who has really won. Labor Tribunal decisions are very quick, with decisions being made in a maximum of three meetings concluded within three to six weeks. So why don’t contract workers speak up or act on their own behalf? Drawing from the perspective of social psychology, we suggest that a first likely explanation is that contract workers are in a vulnerable position and can be let go at any time. Even though there are many people in tenuous contract employment situations, as mentioned earlier, non- regular workers are often neither organized nor members of a union. In contrast, manage- ment is usually quite organized, as well as being in control. This is compounded by the hierarchical nature of Japanese society (Curhan et al. 2014) which reinforces keeping quiet and not speaking up to authority. According to Ikezoe (2018), from the perspective of typical Japanese employment practices, mandatory retirement age systems are company systems that support long-term employment. However, organizations that kept older workers on until the retirement age of 65 often have workers retire at the previous mandatory retirement age of 60 and return under a continuous employment policy at significantly reduced wages until age 65. This is less expensive than increasing the retirement age or doing away with a mandatory retirement system. While workers can thus retire voluntarily on fixed-term contracts and lower pay rather than being forced to retire, and are then hired, they receive fewer benefits and usually have less responsibility. 30 P. ROBINSON ET AL. A second possible explanation for why contract workers do not speak up relates to the potential stigma associated with the lower status of being a contract worker. Jeffries et al. (2012) found that, in highly hierarchical societies, it is more normatively permissible to criticize less empowered, lower status groups than it is to criticize higher status/ more empowered groups. Moreover, lower status groups themselves are more likely to concur and attribute traits of incompetence to their own or other lower status groups. In practice, this may manifest as “stigmatizing” or blaming contract workers for their situation, instead of seeing it as a result of a system that rarely transitions workers from non-regular to regular status. Certainly, given the hierarchical nature of the Japanese workplace, it would go against societal norms for Japanese contract employees to speak up to their bosses or regular employees. Specifically, it may be that Japanese society tends to be more critical of contract workers as “outsiders” and stigmatize them as being to blame for their contract work situation, which implies that they consider contract workers’ skills and abilities as being somehow “less than” those of regular employees. This is exemplified by the recent emergence of very popular but rather deprecating phrases, such as “Winners” (勝ち組 [kachigumi]), “Losers” (負け組 [makegumi]), “Privileged class” (上級国民 [jōkyūkokumin]), etc. By extension, theoretically, the stigma of contract work may affect the contract worker as well as the perceptions of other observers, by reducing the ability of contract workers to be heard or to improve their situation. Who would like to put their hand up and admit that they are in a stigmatized situation, if they believed that admitting their situation might cause others to think less of them? A third possible explanation for why contract workers do not speak up relates to the collectivist nature of Japanese society (see for example, Takano and Osaka 1999; Hamamura 2012). Collectivism in Japan is characterized by conformity and a strong norm against disturbing the harmony (wa) of the group (Konishi et al. 2009). Anyone who disturbs the harmony of the group is likely to be perceived as “the bad guy”, even if they are in the right. Accordingly, it appears that many Japanese, including those that are in fact “in the right”, just keep quiet and do not make a scene. Related to collectivism are the Japanese concepts of uchi (insiders) and soto (outsiders) (Ishida 1984; Takata 2003), which are more pronounced in large Japanese companies, perhaps due to Japan’s racial homogeneity and lack of large-scale immigration and mobility. Many Japanese compa- nies desire to appear loyal to their regular employees (uchi), as demonstrated in their aversion toward downsizing. Companies may believe that if word gets out that they were downsizing the number of regular employees in any way, it would make them a less attractive employer to potential talented regular employees. Thus, maintaining lifetime employment for “insiders” has resulted in employers needing to address labor costs in the case of economic downturn, placing the burden of downsizing on “outsiders” (non- regular employees). This has been further reflected in and exacerbated by Japanese unions not organizing non-regular workers and instead viewing them as a buffer against economic recession for regular employees (Araki 2002, 10), further confirming non- regular workers’ status as more “outsider” than “insider”. These collectivist and hierarchical norms are mutually re-enforcing, making it difficult for one norm or set of institutionalized practices within the system to change without changing other interlinked norms or institutions at the same time. In Japan, collectivist norms around conformity keep people from speaking up, as do hierarchical norms that keep individuals from challenging authority figures such as companies or the CONTEMPORARY JAPAN 31 government. Moreover, informal institutions, such as norms, customs and institutiona- lized practices, reinforce formal institutions such as laws and labor unions in a way that sustains existing structures and practices and impedes change (Whitley 1992). As a result of these mutually reinforcing norms against speaking up, many Japanese non-regular workers are reluctant to acknowledge the unfairness of receiving lower wages for the same work as their regular employee counterparts. This is illustrated in a 2010 study conducted by the Japan Institute of Labor Policy and Training (JILPT 2010) that found that: of part-time workers with lower wages than regular workers, only 27% felt this wage discrepancy was unfair; of fixed-term workers with lower wages than regular workers, only 40% felt the wage discrepancy was unfair; and of dispatched workers with lower wages than regular workers, only 23% felt the wage discrepancy was unfair. The Future of the Two-Tiered Employment System in Japan It appears that wage dispersion in Japan is now on a trajectory similar to that in the U.S. and other industrialized countries, although the disparity between average employee compensation and CEO compensation is certainly less in Japan. However, there are also important differences (Godard 2020). First, while employers in western markets like the U.S. can renew employee contracts as many times as they want, in Japan, contract workers can only renew their contracts up to five years before being forced to change employers, effectively dis-incentivizing employers from investing in any kind of training and devel- opment for them. In addition, in western labor markets such as the U.S., there is a more well-developed secondary labor market that allows for mid-career job change with little or no stigma attached to changing jobs. In Japan, the secondary labor market is relatively underdeveloped and informal interviews from our case study suggest there is a perceived stigma attached to changing jobs, as if one had been pushed out of their company because they could not get along with colleagues or did not produce high quality results. Proponents of maintaining lifetime employment, such as Keidanran, may claim that regular (lifetime) employees merit better wages and benefits because they are doing significantly different (and more valuable) work; such employees are, for example, respon- sible for people management and project results. These same proponents might also point to the 2012 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 as evidence that contract workers’ interests can be served without having to do away with the lifetime employment system. Specifically, they might cite the Act’s stipulation of improved contract worker protections, such as stricter liability (including deemed employment) for the agency and the client company in the case of breach, as well as further amendments to remove distinctions Whitley (1992) notes: “Cohesive and mutually reinforcing nature of many characteristics of East Asian business systems. . .suggest that, once established in particular institutional contexts, effective business systems may develop considerable cohesion and become resistant to major changes. Thus, once a particular business system has become established and certain rules of the game are institutionalized, major changes in firm type and patterns of behavior are unlikely to occur in the absence of substantial institutional changes” (Whitley 1992, 240–247). 32 P. ROBINSON ET AL. between specialists and generalists and the (in effect) three-year limit on contract length, as proof that the lifetime employment system can be maintained while addressing contract workers’ needs. Prior to the 2020 reforms, opponents of maintaining lifetime employment were inclined to point out that contract workers are generally doing exactly the same work as lifetime employees but for vastly inferior wages and benefits, with contract workers suffering the addition of job insecurity and lack of career progression. As can be the case with SME (small and medium enterprise) subcontractors to large Japanese manufacturers, opponents of maintaining lifetime employment consider that contract workers unfairly bear the brunt of labor cost reductions in economic downturns. Aoki (1996, 236) predicted that this dilemma (of a two-tiered employment system) “is not likely to be resolved simply by a ‘big bang transition’ to the Anglo-American [system] . . . because the Anglo-American-type framework will not easily fit with the existing organizational convention and the [Japanese] government will be unable to change the organizational convention by the stroke of a legislative pen”. Specifically, he foresaw that complete convergence toward a western model would be difficult due to the variance in historical conditions among economies and the need for structural consistency between regulations and other institutions (Aoki 2000, 5). Aoki (1996, 236) concluded that, “The possible reform of institutions in Japan seems to lie only in an extension of its own evolutionary path and that should be the way for Japan to contribute to the gains from system diversity on a global scale”. The argument we have presented in this paper would support Aoki’s conclusion and extend his arguments to explain the problems for a less- commonly studied group of Japanese workers that stands to gain the most from effective institutional reform: contract workers. Discussion and Summary: Forming a More Complete Theoretical Explanation Japan illustrates how the embeddedness of HRM practices in an institutional context makes it difficult to change one part of a system of interlinked institutions. This paper combines several theoretical explanations to explore why the divide between regular employees and contract workers has become even more disparate in a society that considers itself egalitarian. We began by examining the turnover of contract workers in a single organization since the 2012 amendments to the Labor Contracts Act took effect in 2018 and then looked at how the situation could be generalized to other organizations. We then traced the evolution of the laws in the context of theoretical factors such as path dependence, vested interests and lack of voice. With regard to path dependence, the particular conditions in post-war Japan and the nature of relationships between govern- ment, labor and corporations created the conditions for a system of lifetime employment that has acted to exclude the development of institutions that could challenge it or bring about its demise. Specifically, maintaining the system of lifetime employment created a situation in which employers only address labor costs by putting the burden of inequality on contingent employment. Thus, the continued predominance of the lifetime employ- ment system perpetuated itself in large Japanese companies and constrained opportu- nities for alternative equivalent modes of labor and labor equality. CONTEMPORARY JAPAN 33 Second, we explored power dynamics and vested interests. We argued that Japan’s distinct employment customs and practices have been reinforced through vested inter- ests, because: 1) vested interests pursue patterns that reinforce their power, 2) existing notions of legitimate behavior are strongly held, and 3) the complementarities between institutions make the system self-reinforcing. Here, vested interests further perpetuated labor inequality by supporting regular (lifetime) employees and not contingent workers, especially contract workers. Although unions substantially consolidated and unified the labor movement with the establishment of Rengō in 1989, their influence declined subsequently, resulting in them losing veto power and representation in the process of labor-market deregulation. Their power was diluted further by diverse opinions and conflicts of interest among their member groups, and membership declined with the increasing number of unorganized non-regular workers. In sum, the weakening of unions over time increasingly excluded the voice of contingent workers from the decision- making processes. Thus, the workers most impacted by Japanese labor-related legislative change were the ones who had the least voice. Finally, we explored the disempowerment of contract and part-time workers to speak up on their own behalf to better their position. Here, collectivist norms of conformity in not questioning the group combined with the difficulty of speaking up when one’s job is vulnerable all contribute to a lack of voice by contract workers. This is further reinforced by social psychological theory that posits it is more socially acceptable to criticize groups with low status and power than groups with high status and power in very hierarchical societies (Jeffries et al. 2012). As is the case with subcontractors in Japan who struggle to maintain full-employment at large assemblers when the economy declines, it is contract workers who are the first to be impacted negatively when budgets shrink, in order to ensure that regular workers maintain full employment. Contract workers have never been on par with regular workers in Japan in terms of pay and benefits for similar work in spite of legal provisions mandating that this be so, but the disparity has been exacerbated by the unintended consequences of the 2012 amendment to the Labor Contracts Act 2007. Contract workers lag behind their regular employee counterparts from their first job, and the divide only increases as they age. In order to address this, MHLW issued in 2018 Guidelines on the Prohibition of Unreasonable Treatment of Part-Time Workers, Fixed-Term Workers, and Dispatched Workers, which aims for equal pay for equal work. The intent of the guidelines is to address disparity among workers; however, similar to many previous labor-related laws in Japan, there is no direct penalty for non-compliance, and workers need to appeal to the Labor Standards Bureau to attempt to have the law enforced. As a result, while some favorable changes with respect to payment and benefits for contract employees may occur, it is likely to happen very slowly. Moreover, the guidelines do not address the broader issue of employment instability experienced by contract workers. One contribu- tion of this paper is to extend theories relevant to understanding the evolution of the two- tiered labor system in Japan to the less-studied area of contract employees. Disclosure statement No potential conflict of interest was reported by the authors. 34 P. ROBINSON ET AL. Notes on contributors Patricia (Tish) Robinson (Ph.D. MIT Sloan School) serves on the faculty at Hitotsubashi University School of International Corporate Strategy. She has received the Academy of International Business Farmer Award, the Academy of Management Richman Award, three Fulbright Fellowships, a Japan Foundation Faculty Fellowship, and a Shintaro Abe Fellowship, among others. Professor Catherine Sibala teaches business ethics and ethical leadership at the School of International Corporate Strategy (Hitotsubashi ICS). Prior to joining Hitotsubashi ICS, she was Senior Analyst at Okamoto Associates, Inc. and served for more than 15 years in the Australian government, including as a diplomat - Political First Secretary - to Japan. Dr. Kiyohiko Ito (Ph.D., University of Michigan) is Shidler College Distinguished Professor at the University of Hawaii at Manoa. His areas of research include strategic management of multinational corporations, Japanese spinoff subsidiary management, and “millennium” companies. His work has appeared in Management Science, Strategic Management Journal, Journal of International Business Studies, and other journals. Professor Vicki L. Beyer teaches employment, corporate and business law at Hitotsubashi University as well as lecturing at other universities. Prior to joining Hitotsubashi, she spent 17 years as an in- house lawyer in Tokyo, specializing in employment law, employee relations, and corporate govern- ance, covering several Asian jurisdictions ORCID Patricia (Tish) Robinson http://orcid.org/0000-0003-2077-9894 References “Act on Improvement, etc. Of Employment Management for Part-Time Workers” of 76 of June 18 June 1993, Article 8. “Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (Act No. 88 of 1985).” http://www.japaneselawtranslation.go. jp/law/detail/?re=02&dn=1&x=53&y=6&co=1&ia=03&yo=&gn=&sy=&ht=&no=&bu=&ta=&ky= act+for+securing+the+proper+operation+of+worker+dispatching+undertakings&page=21 Aguilera, R. V., and G. 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Types of workers Modes of employment in Japan take on various definitions, so it is useful to begin by defining categories of workers in Japan rather than categories of employees, as there are a number of groups of working people in Japan who are not employees. The Japanese definition of worker (in Japanese, rōdōsha) is not so different from the U.S. definition of employee; as set out in Article 9 of the Japanese Labor Standards Act 1947, a worker is “one who is employed at an enterprise or place of business and receives wages therefrom, without regard to the kind of occupation”, while the Labor Union Act 1949 defines a worker as “those persons who live on their wages, salaries, or other equivalent income, regardless of the kind of occupation”. Regular employees (正社員 [seishain]). Regular employees generally only exist in large Japanese companies. While lifetime employment is nowhere written into the law, it is a common employment practice that the law has supported in a number of ways (Carter and Nasuda 2014). A regular worker is commonly considered in Japan to mean an employee who is hired directly by his/ her employer without a predetermined period of employment, and works for scheduled hours (Asao 2011). Traditionally, the “pillars” of lifetime employment are an expectation of continued employment through retirement age, seniority-based pay, and enterprise-based unionism. Contingent workers. Similar to the U.S., at present in Japan about 40% of the workforce are contingent workers of some sort (Japanese Ministry of Internal Affairs and Communications, Statistics Bureau 2018). Modes of contingent work include: ● Dispatched (派遣社員 [hakenshain]) or temp workers ● Fixed-Term Contract Workers (契約社員 /労働者 [keiyakushain/rōdōsha]) ● Part-time (パート ) and other limited regular workers (非正規の職員 [hiseiki no shokuin],非正規 の従業員 [hiseiki no jyūgyōin) Dispatched (or temp) workers. Dispatched workers, known in Japanese as haken, here are defined as workers dispatched from a licensed dispatching agency, as set out in the provisions of the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (1985). These workers may be employed on a fixed-term or open- ended contract, and on a full-time, part-time, or indirect basis (Asao 2011), and are defined under the Act as workers employed by one person so as to be engaged in work for another person under the instruction of the latter, while maintaining his/her employment relationship with the former. Fixed-Term Contract (契約社員)(entrusted 嘱託 [shokutaku] and temporary workers 臨時社員 [rinjishain]). Contract workers and entrusted workers are those who are employed on a relatively long fixed-term, full-time, and direct basis. Contract workers are defined as employees specifically hired to perform a specialized type of work, whereas entrusted employee is a term often used to refer to an older worker who is re-hired by their previous employer after their retirement at the company’s mandated retirement age (Asao 2011). Fixed-term contract workers have been a common coping mechanism to address economic volatility since long before haken, or “dispatched workers”, came into being and many large employers have used (and continue to use) them. Since 1974, there have been a number of situations for which courts have found fixed-term contractors are entitled to ongoing employment: Interestingly, in both jurisdictions, the definition of employee may vary by statute. That is, different statutes have different definitions and apply to–or protect–different groups of people, as just demonstrated by the two definitions from the Labor Standards Act and the Trade Union Act. Instead of being written into the law, there are some judicial decisions where judges have laid out up to four tests that must be met for downsizing. And there are subsequent judicial decisions which say that actually those four tests are really just guidelines and if an employer meets one or two tests and shows that they tried, layoffs would be allowed. Under the 2012 amended provisions (Article 40–6) of the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985, a direct employment offer shall be considered to be provided by the client company to the dispatch worker when there are illegal items in the worker dispatch arrangement, including breach of the term limit. As such, an employment relationship may be deemed to exist directly between the dispatch worker and the client company who will lose its previously enjoyed flexibility to terminate the dispatch worker’s employment. CONTEMPORARY JAPAN 41 When the work done by the fixed termer is basically the same as that done by a regular employee. When there are successive renewals, often relatively automatic – depending on the facts of the specific case, some courts have said the nature of the contract changes at some point, while other courts have found that it was regular employment from the beginning. In such cases, the employer is often required by the courts to provide ongoing contract renewals unless there is some fair and appropriate reason not to renew. Even in situations like these, many companies have continued to use these kinds of fixed-term contracts in a way that aims to avoid any obligations to have these fixed-term contracts become ongoing. Temporary workers are those who are employed on a relatively short fixed-term, fulltime, direct basis (Asao 2011). For example, even though the concept of deemed employment is encouraging, the relaxing of the term limit means that many workers may actually become permanent temps rather than attain employment more analogous to regular employment. Women make up more than 70% of temp workers for the period 1984–2021. Part-time and other limited regular workers. Part-time workers have always existed in Japan. Under the Act on Improvement, etc. of Employment Management for Part-Time Worker (1993), a part- time worker is defined as a worker whose prescribed weekly working hours are shorter than those of ordinary workers employed at the same place of business. Part-time workers can be fixed-term or open-ended, part-time directly employed, and may fall under this classification on the basis of job title, shorter duration of work hours (compared to “ordinary”, regular workers) or working fewer than 35 hours a week, which is the standard definition of a working week (Asao 2011). As the percentage of regular (lifetime) employees continues to decrease, the percentage of other categories of workers, including part-time workers, has increased. Another new, special category of workers who have contracts without end dates is limited regular workers. They are similar to other regular employees except that their contracts stipulate their role or work location. This means that they are not expected to be trained or rotated through various departments of the company as other regular employees are, which has the effect of locking them into dead-end positions without any opportunity for advancement. Additionally, they can more easily be terminated if their role or work location ceases. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Japan Taylor & Francis

The deepening divide In Japanese employment: The increasing marginalization of contract workers as explained by path dependence, vested interests, and social psychology

The deepening divide In Japanese employment: The increasing marginalization of contract workers as explained by path dependence, vested interests, and social psychology

Abstract

In Japan, contract workers have never been on par with regular workers in terms of pay or benefits for similar work. However, the disparity between contract workers and regular workers has seen a sudden and dramatic turn for the worse since 2018 when the unintended consequences of the 2012 amendments to the 2007 Labor Contracts Act took effect. Although employment numbers may appear consistent over time, in actuality, as of 2018, nearly all contract workers are being replaced every three to five years. This is because employers are choosing contract lengths that prevent contract employees from qualifying under the 2012 amendments for ongoing, long-term employment. Accordingly, being forced to change jobs every three to five years in Japan’s seniority-based employment system is causing contract workers to fall further and further behind their regular worker peers in terms of wages, as well as job security, even as they are performing the same work. This is striking because the purpose of the 2012 amendments to the Labor Contracts Act was to bolster employment security and provide more equality between regular and contract workers. Instead, as more and more employees lose regular employment and fall into contingent and contract work due to corporate downsizing, the marginalization of contract workers in Japan increases, and their numbers expand. This paper proposes an interdisciplinary explanation of the evolution of contract work in Japan since 2000, drawing on: 1) a case study, and 2) labor market data.

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10.1080/18692729.2022.2028229
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Abstract

CONTEMPORARY JAPAN 2022, VOL. 34, NO. 1, 13–41 https://doi.org/10.1080/18692729.2022.2028229 The deepening divide In Japanese employment: The increasing marginalization of contract workers as explained by path dependence, vested interests, and social psychology a b c d Patricia (Tish) Robinson , Catherine Sibala , Kiyohiko Ito and Vicki L. Beyer School of International Corporate Strategy, Hitotsubashi University Business School, Tokyo, Japan; b c Hitotsubashi University Business School, School of International Corporate Strategy; Shidler College of Business, The University of Hawaii at Manoa, Honolulu, U.S.A.; Hitotsubashi University Graduate School of Law, Tokyo, Japan ABSTRACT ARTICLE HISTORY Received 23 September 2021 In Japan, contract workers have never been on par with regular Accepted 3 October 2021 workers in terms of pay or benefits for similar work. However, the disparity between contract workers and regular workers has seen KEYWORDS a sudden and dramatic turn for the worse since 2018 when the Japan; modes of unintended consequences of the 2012 amendments to the 2007 employment; lifetime Labor Contracts Act took effect. Although employment numbers employment; contract may appear consistent over time, in actuality, as of 2018, nearly all workers; workplace inequality; labor relations; contract workers are being replaced every three to five years. This comparative institutional is because employers are choosing contract lengths that prevent analysis contract employees from qualifying under the 2012 amendments for ongoing, long-term employment. Accordingly, being forced to change jobs every three to five years in Japan’s seniority-based employment system is causing contract workers to fall further and further behind their regular worker peers in terms of wages, as well as job security, even as they are performing the same work. This is striking because the purpose of the 2012 amendments to the Labor Contracts Act was to bolster employment security and provide more equality between regular and contract workers. Instead, as more and more employees lose regular employment and fall into contingent and contract work due to corporate downsizing, the marginalization of contract workers in Japan increases, and their numbers expand. This paper proposes an interdisciplinary explanation of the evolution of contract work in Japan since 2000, drawing on: 1) a case study, and 2) labor market data. Employment in large, contemporary Japanese companies demonstrates an increasing employment divide between regular (lifetime) and non-regular workers, particularly contract workers (Hirano 2020; Shimanuki 2017). Regular employees and contract workers often perform very similar work, but for very different wages and benefits and under very different employment conditions (MHLW 2020). However, little theory has been developed to explain why the divide between regular and contract workers CONTACT Patricia (Tish) Robinson probinson@ics.hub.hit-u.ac.jp Hitotsubashi University Business School, School of International Corporate Strategy, National Center of Sciences, 2-1-2 Hitotsubashi Chiyoda-ku, Tokyo 101-8439, Japan © 2022 German Institute for Japanese Studies 14 P. ROBINSON ET AL. has suddenly and dramatically diverged in recent years. This divide between regular and contract workers is a major source of rising inequality in Japan and is thus an important social issue that merits public attention (Imai 2011; Kawaguchi and Ueno 2013; Ouchi 2015; Weathers 2004; Yashiro 2011). Accordingly, this paper combines and extends theory to provide a richer theoretical explanation for the situation of contract workers in contemporary Japan. This article is organized as follows. First, we describe the widening gap between regular and non-regular workers. Second, to illustrate the issues at play, we examine the turnover of contract workers in a single organization since the 2012 amendments to the Labor Contracts Act 2007 (労働契約法 [rōdō keiyaku hō]) went into effect in April 2013. Next, we summarize the laws regarding contract workers since 2000. We then explore the theoretical reasons for contract workers becoming disempowered relative to regular workers. We conclude the paper by proposing a richer theoretical explanation that extends and integrates different theories. This paper explores the evolution and persistence of long-term regular employment and argues that laws coming into effect in and after 2012 have inadvertently expanded the presence of non-regular employment, pushing these two groups of workers further and further apart economically. Drawing on comparative institutional analysis, political science, and social psychology, we propose that the evolution of contract work in Japan is a product of path dependence, vested interests and mutually reinforcing formal and informal institutions. The issue of contract workers in Japan is important because it illustrates growing job insecurity, as well as a growing economic divide between contract workers and regular workers. As an unintended consequence of the 2012 amend- ments to the 2007 law, most contract workers are forced by their employers to seek employment with a new company every three to five years, whereas prior to 2012, it was possible for a fixed-term contract worker to receive regular renewals with the same employer, allowing them to stay at one organization for signifi - cantly longer periods than now allowed by law (see Appendix 1 for various types of workers). The negative repercussions for contract workers of changing employment every several years in a seniority-based system are many, including: Contract workers can never gain more than three to five years of seniority, which affects “seniority-based pay”. Similarly, what experience they gain they cannot leverage effectively. There is no incentive for employers to invest in training or development for employ- ees who will be there only three to five years. ● Over time, as contract workers age, they become less competitive relative to younger counterparts and their situation becomes even more tenuous. The 2012 amendment was a “codification” of previous judicial decisions that had come to be accepted as the law in any event, so most employers were careful not to renew too many times. CONTEMPORARY JAPAN 15 The consequences of constant staff turnover present challenges for organizations as well: Organizations must divert resources to orienting and onboarding new contract workers regularly. Organizations lose productivity; in the final year of their contract, contract employees are essentially lame ducks, with no incentive to work hard. In addi- tion, much of their energy is often focused on seeking a new job to provide income starting when their current contract ends. ● Organizations lose institutional memory due to constant turnover. THE WIDENING GAP BETWEEN REGULAR & NON-REGULAR WORKERS Quantitatively and qualitatively, the distribution of regular (lifetime) and non-regular contract workers has changed over the past three and a half decades in Japan (Araki 2006; Hirano 2020; Imai 2011; Kawaguchi and Ueno 2013; Keizer 2009; Kitagawa and Teruma 2018; MacVaugh and Evans 2012). Quantitatively, the increasing divide between regular and non-regular workers is evident in the more than doubling of non-regular workers, from 15.3% of the Japanese workforce in 1984 to 36.7% in 2021, as shown in Table 1 below (Statistics Bureau, MIAC 2021), as the economy slowed after the burst of the bubble economy. Notably, during the Covid-19 epidemic, unemployment increased from 1.62 million unemployed job seekers in 2019 to 1.98 million in 2020. Among the unem- ployed, the number of laid-off workers (including workers who had reached retirement age) increased from 370,000 in 2019 to 590,000 in 2020, with most of those laid off being non-regular workers (MHLW 2021). Table 1. Employed Person by Type of Employment (1000 persons) 1984–2021. Regular Employee (A) Non-Regular Employee (B) (B)/{(A)±(B)} 1984/2 33,330 6,040 15.3% 1985/2 33,420 6,550 16.4 1990/2 34,880 8,810 20.2 1995/2 37,790 10,010 20.9 2000/2 36,950 13,130 26.2 2005/1-3 33,330 15,910 32.3 2010/1-3 33,810 17,140 33.7 2015/1-5 32,770 19,850 37.7 2020/1-3 35,080 21,530 38.0 2021/1-3 35,460 20,550 36.7 https://www.stat.go.jp/data/roudou/longtime/03roudou.html (Source: Statistics Bureau of Japan 2021) In terms of the quality of jobs, most premium (regular) jobs have gone to men, while the majority of non-regular jobs have gone to women, minorities and older workers. In 1990, around 3% of younger male workers in Japan were in non- Statistics Japan, Table I-Population aged 15 years old and over by Labor force status, employed person by industry, and unemployed person by industry, and unemployed person by reason for seeking a job, Statistics Bureau, Ministry of Internal Affairs and Communications, 30 January 2018) https://www.nippon.com/en/features/h00175/. 16 P. ROBINSON ET AL. regular employment. By 2020, that figure had increased fivefold for the 25–34-year -old age group and twofold for those aged 35–44 (Statistics Bureau, MIAC, 30 January 2018; Forrest and Izuhara 2013). In 2020, 32% of female workers aged 25– 34 were non-regular workers (Statistics Bureau of Japan 2021). Thus, non-regular employment status has emerged as a particularly serious issue among young people. In 2017, 25.8% of all workers (male and female) aged 25–34 and 28.6% of workers aged 35–44 years were non-regular workers (Statistics Bureau, MIAC 2018). Wages for regular workers and contract workers have diverged over time (Lise et al. 2014; Ohtake and Tsuru 2019). As can be seen from the 2019 data in Figure 1 (below), although wages start out about the same when workers are aged 19 or younger, wages reach 2,477 yen/hour for regular workers 50–59 years of age, compared to only 1,301– 1,308 yen/hour for contract workers of the same age. On average, over their working lives, regular workers earn 150% of what contract workers earn, often for the same work, with regular workers earning 2,021 yen/hour on average over their working lives, compared to contract workers earning only 1,337 yen/hour on average over theirs (MHLW 2020). Wages of Regular and Contract Workers by Age WAGES in YEN Below age Age 20-24 Age 25-29 Age 30-34 Age 35-39 Age 40-44 Age 45-49 Age 50-54 Age 55-59 Age 60-64 WORKER AGE Source: Japanese Ministry of Health, Labor, and Welfare, 2020 Regular Workers Contract Workers Figure 1. Source: Japanese Ministry of Health, Labor and Welfare, 2020. Statistics Japan, Table II-7 Employee, excluding executive of company or corporation, by type of household, relationship to the head of household, marital status, age, number of persons engaged in enterprise, industry, occupation, weekly hours of work, type of employment and status in employment (Statistics Bureau, Ministry of Internal Affairs and Communications, 30 January 2018, https://www.nippon.com/en/features/h00175/, accessed 24 October 2018). CONTEMPORARY JAPAN 17 A CASE STUDY ILLUSTRATING THE HIGH TURNOVER OF CONTRACT WORKERS The issue of turnover does not stand out in the growing number of non-regular workers because when contract workers end their contract and seek employment at another company, the number of positions and the number of contract workers stays the same in any given organization. However, under the surface of apparently consistent employ- ment numbers over time, most contract workers are being replaced every three to five years. Thus, an unintended consequence of the 2012 amendments to the Labor Contracts Act 2007 is that, contrary to the law’s intention, they have decreased the job security of all contract workers, who are forced to seek new employment every three to five years. We examine the turnover of contract employees using an anonymized, fairly typical organization in Tokyo in the educational service industry with approximately 40 employ- ees as an example. It shows that while the number of non-regular workers appears to stay the same, the organization experiences 100% administrative staff turnover within three years, because the staff are all contract workers. The case study organization depicted in Table 2 illustrates how the 2012 amendments to the Labor Contracts Act of 2007, contrary to its intention of providing longer, continuous employment for contract employees, have in practice served as a vehicle for widening the gap between regular workers and contract employees through increased job insecurity. The organization studied in Table 2 is by no means unique vis-à-vis its differential treatment of regular and contract workers; such approaches have been observed throughout the case study organization’s educational service industry sector more broadly, as well as in other sectors. Prior to the 2012 amendments to the Labor Contract Act 2007, the organization depicted in Table 2 typically did not offer regular worker status to professional office staff: all were engaged as contract workers whose contracts of employment specified the end date of their contract. Contract workers were on renewable contracts, whose total accumulated length could extend to between 10 and 20 years. Following the 2012 amendments coming into force in April 2013, the organization did not permit workers who had reached the end of their contractual period to immediately and contiguously sign a new employment contract. Instead, a worker wishing to continue their employ- ment with the organization would be required to take a six-month “break”, after which they could be re-hired to their former position on a new contract, with commensurate benefits such as the number of leave days re-setting to zero, the same as for a brand-new Table 2. Turnover among Contract Workers in a Typical Small Organization in Tokyo. Year (beginning Total Number of Administrative Number of Staff who left that year Number of Staff who April 1) Staff (all non-regular) because their contract ended joined that year 2016 17 5 7 2017 19 6 7 2018 20 4 7 2019 23 11 12 2020 24 6 4 2021(as of 22 1 1 July 2021) 18 P. ROBINSON ET AL. employee. Under this system, it was even possible for the worker to continue working for the organization during their “break” as a kind of “independent contractor,” as long as there was discontinuity between periods as an employee of the organization. However, around the time the consequences of the 2012 amendments began to be fully seen (in 2018), the organization implemented a stricter policy under which workers reaching the end of their contract were required to take a complete break of at least 12 months, during which they could not have any kind of working relationship with the organization. In effect, this policy worked to drive away previous workers, most of whom could not afford to take a one-year “break” from paid employment, and so had to find a job elsewhere. Over the four-year period from 2018–2021 (July), the case study organization saw a staff turnover rate of between 22%-44% per annum; almost all staff who left did so involuntarily, due to the expiration of their contract period. Of the 21 staff members who were employed with the organization at the beginning of July 2018, only two remained as of Summer 2021 (and one of these was due to leave the organization by the end of 2021 when his/her contract ended). The contracts of all these workers were drawn up to reach but never exceed five years in length, enabling the organi- zation to follow the letter of the law, while at the same time making it impossible for workers to become eligible to apply for ongoing employment by exceeding five years’ continuous employment. CHANGES IN LAWS REGARDING CONTRACT WORKERS SINCE 2000 In 2003, amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act (労働者派遣事業の適正な運営の確 保及び派遣労働者の保護等に関する法律 [rōdōsha hakkenjigyō no tekiseina unei no kakuho oyobi hakkenrōdōsha no hogotō ni kansuru hōritsu) 1985 (Article 40–4) obliged employers to “offer” a dispatched worker a regular employment contract (koyō mōshikomi gimu) in the case of the continuation of the dispatched worker’s contract beyond the maximum three-year legal period for non-professional or non-technical occupations (Watanabe 2012, 23–50). However, employers easily circumvented this requirement by redefining jobs, and no penalties were imposed on the employer for accepting temporary workers in breach of the law (Nakano 2003). In March 2004, the worker dispatching period, which had previously been severely limited for most occupational categories, was extended, allowing firms to make greater use of dispatched personnel instead of regular employees (JILPT 2011/ 2012/2012). With the aim of helping Japanese companies to remain globally compe- titive and make Japan’s economy more flexible and responsive, the law permitted companies to give temporary workers lower wages and fewer benefits than regular employees who performed equivalent work. Companies reacted to labor market deregulation by categorizing many new jobs as temporary ones. Also around this time, the increasing use of fixed-term contracts, along with a number of judicial decisions, led to the introduction of the Labor Contracts Act 2007, which took effect from April 2008. http://factsanddetails.com/japan/cat24/sub156/item907.html. CONTEMPORARY JAPAN 19 The 2012 Amendments to the Labor Contract Act 2007 In 2012, then-Prime Minister Abe announced a number of workstyle reforms, which included a goal (subsequently revised downward) of having 30% of management posi- tions occupied by women by 2020. The idea behind these reforms was to introduce changes that would bring about a labor market environment suited to the demographic distribution that Japan had been experiencing since around the mid-1990s. Until this point, there were workers being employed continuously by the same organization via contiguous short-term contracts with no job security, no pension, no retirement benefits and less pay than regular employees, only to come into work one day and be told that their contract was no longer going to be renewed. In one example, a contract worker joined a company in 2000 and worked there for almost 17 years, renewing their initial 3-month contract more than 60 times, before losing their job when they were told in December 2017 that their contract would not be renewed (Kyodo 2018). In 2012, the Japanese government revised the Labor Contracts Act 2007 to introduce Article 18, which stipulates that workers who have worked on renewed fixed-term contracts for a period exceeding five years are entitled to demand contract renewal without a termination date. While not offering regular “lifetime” employment (seishain) status, this granted non- regular employees employment stability similar to that of their regular employee colleagues, at least giving them the security of ongoing employment. This was said to be an attempt to recognize such temporary workers as the equal of regular employees. The Japanese Ministry of Health, Labor, and Welfare (MHLW) drafted the 2012 amend- ments as requiring every fixed-term contract to contain a provision explaining whether or not the contract could be renewed, and the grounds for renewal or non-renewal. The MHLW intended that if the job was going to be continuing, then the person in the job The Labor Contracts Act (LCA) 2007 was amended in August 2012 to prescribe the following three new rules regarding workers employed on contracts with fixed terms: 1. In the event that a fixed-term contract concluded on or after the day the amendment came into effect has been repeatedly renewed for more than five years in total, the worker in question is entitled to have their contract converted to an open-ended contract, should the worker request it (Article 18). 2. In the event that a fixed-term contract has been repeatedly renewed and is in effect what can be regarded as an open-ended employment arrangement, or the fixed-term contract worker has reasonable grounds to expect the contract to be renewed, refusal to renew the contract is not permitted when the refusal is deemed lacking reasonable grounds and socially inappropriate (the fixed-term contract is deemed to have been renewed) (Article 19). 3. It is prohibited for an employer to subject a worker whose contract has a fixed term to unreasonable differences in labor conditions between said worker and the open-ended contract workers employed by the same employer (Article 20). Companies use fixed-term contracts to afford more flexibility, particularly in the case of older workers. The pension age has risen to 65, but many companies with wage systems based on tenure do not want to raise their retirement age beyond 60 or 62, because they feel that older workers are not as valuable as younger workers, and they do not want to have to keep giving those workers raises and paying them benefits. The government agrees that older employees may not contribute as much value, but it also has an interest in keeping those workers employed until they reach the pension age. After all, if senior citizens are not employed, they could wind up needing government assistance. So, under Article 9 of the Stabilization of Employment for Older Workers Act 1971, the government made it possible for companies to keep their retirement age at 60 if the company employs a rule that they will re-hire retired workers on fixed-term contracts until those older workers reach the pension age. This allows companies to re-hire the workers on cheaper terms. In reality, this is a form of government-sanctioned age discrimination. In the case of Tsuda Electric Motors v. Okada (2012), Tsuda Electric was a company with retirement age of 60 that automatically rehired retirees for one year and then, based on their performance score, gave them a further contract for full or part-time work. Tsuda Electric didn’t give Okada a further contract because they said his performance score was less than 0. At issue was whether Okada was entitled to a further contract. The Holding was that Okada was entitled to a further contract. The rationale was that the company had publicized its conditions for rehiring retirees and in fact Okada had a performance score of 1 (the company erred in saying his score was less than 0). Okada was entitled to expect to receive a contract to work for 30 hours per week. 20 P. ROBINSON ET AL. should be allowed to continue in that job. Therefore, technically under the law, it was not legal for the employer to refuse to renew a contract simply because the contract worker was coming up to the five-year mark. Employees first become eligible to claim a right to ongoing employment based on the 2012 amendments on 1 April 2018. However, many employers, rather than putting into place frameworks to facilitate the change, began introducing measures that aimed to prevent any of their fixed-term contract employees from becoming eligible for ongoing employment. These measures included non-renewal contract clauses and requiring fixed-term contract employees to take a six-month break from employment before reaching five years of service, only to be hired again later into the same position as a technically new employee. This effectively restarted the five-year clock, thereby ensuring the contract employee did not become eligible for an open-ended contract, as our case study organization illustrates. These actions, while remaining within the letter of the law, violate its intention (Hayata 2016). However, as is the case with many new Japanese laws, the 2012 amendments to the Labor Contracts Act of 2007 contained no penalties for violations. The MHLW perhaps hoped that aggrieved employees would enforce the law by going to either the Labor Tribunal or the Labor Standards Bureau. Also in 2013, in an environment characterized by an aging population and an ever- increasing social security burden, the Japanese government increased the minimum age for receiving social security pension payouts, from 60 to 65, a change implemented progres- sively at the rate of a one-year increase every three years from 2013 until 2025 for men and from 2018 until 2030 for women (Schreiber 2013). Due to concerns over the increased costs associated with having seniority-linked pay under the lifetime employment system, the changes to Article 9 of the Stabilization of Employment of Elderly Persons Act 1971 (高年齢者 等の雇用の安定等に関する法 [kōnenreishatō no koyō no anteitō ni kansuru hō]) allowed employers to keep their mandatory retirement age at 60 with the proviso that they should re-hire retired workers on fixed-term contracts until they reached the pension eligibility age of 65 (Martine and Jaussaud 2018). The 2015 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 set an upper limit of three years for a utilizing company to retain a dispatched worker in the same company division, after which the company must offer direct employment to the worker, engage the worker in another company division, or make efforts to provide employment opportunities to the worker before replacing them with a different worker. The amendments also confirmed the 2012 amendment stipulating that a utilizing company that knowingly accepted a dispatch worker under arrangements that constituted a serious breach of the Act would be deemed to have offered to the worker a direct employment contract (Herbert Smith Freehills 2015). Nonetheless, the overall effect of the amendments has been to benefit dispatch companies and their clients, allowing them to use temporarily dispatched labor even more freely. Dispatching companies and employers benefitted in spite of the original purpose of better protection of workers. In 2012, amendments were made to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 to offer better worker protections such as stricter liability (including deemed employment) for the agency and the client company in the case of breach, and, in 2015, further amendments were made to remove distinctions between specialists and generalists, as well as (in effect) to eliminate the three-year limit on contract length. A point of note is that Heizo Takenaka, a proponent of deregulation since his time as a member of the Koizumi Cabinet and now the Chairman of Pasona Group Inc., Japan’s largest worker dispatch company, was a member of the Industrial Competitiveness Council, an advisory committee to the Abe Government that introduced these amendments. CONTEMPORARY JAPAN 21 The Law on Equal Treatment of Workers The Improvement of Personnel Management and Conversion of Employment Status for Part- Time Workers and Fixed-Term Workers Act 1993 (短時間労働者及び有期雇用労働者の雇 用管理の改善等に関する法律 ; [tanjikanrōdōsha oyobi yūkikoyōrōdōsha no koyō kanri no kaizentō ni kansuru hōritsu]) and its 2018 amendments aim to facilitate the equal employment treatment of regular and contract workers, including in the case of the latter furthering their conversion to regular employment (as stated in Article 1 of the 1993 Act). Key provisions of the Act as they relate to the themes of this paper include: ● Employers must create contract terms that ensure the differences in the treatment of standard (regular) and fixed term (contract) workers in terms of pay, bonuses and other employment conditions are not unreasonable (Article 8). ● Employers must not subject a contract worker who is essentially doing the same work as a regular employee to differential treatment vis-à-vis pay, bonuses and other employment conditions on the basis of the worker’s status as a contract worker (Article 9). ● Employers must strive to provide equal pay for contract workers and regular workers, taking into account job descriptions, job performance, ability and experience (Article 10). ● Employers must implement for their contract workers the same education and training they implement for regular workers with the same job description, taking into account job description, job performance, abilities and experience (Article 11). ● Employers looking to hire a regular worker with standard employment status must make known to their contract workers the pay and conditions for the position, and must provide contract workers with an opportunity to apply for the position. Employers must also take measures to further the conversion of contract workers to regular workers (Article 13). Court Decisions In 2020, Japan’s Supreme Court made a number of rulings in relation to the 2012 amendments to the Labor Contracts Act 2007, including its central premises of equal pay for equal work and prohibition of unreasonable unequal treatment. While the set of decisions acted to narrow some of the gap between regular and contract workers on matters such as pay and certain allowances, it kept in place the rigid two-tiered Japanese labor market and did very little to address the fundamental concern of job security for contract (and other non-regular) workers. ● Japan Post: The court ruled that contract workers should receive allowances for housing, family members and holiday and sick leave similar to those provided to regular employees. ● Osaka Medical College: Overturning the ruling of a lower court that awarded JPY1.09 million in mostly unpaid bonuses to a former female employee hired by Osaka Medical College under a one-year renewable contract on an hourly wage, the 22 P. ROBINSON ET AL. Supreme Court ruled that not giving a bonus to a per-hour worker tasked with light work and subject to no job rotation did not constitute the unreasonable disparity the law prohibits. Tokyo Metro: The Supreme Court overturned a lower court decision that had granted partial pension payments to former fixed-term contract employees who had worked for a decade with Metro Commerce, a Tokyo Metro subsidiary. THEORETICAL PERSPECTIVES ON THE INCREASE OF CONTRACT WORKERS Institutional theory suggests that economic activities and business practices are socially embedded and that economic efficiency and success are socially constructed and vary significantly across social contexts (see for example, Donzé and Smith 2018; Godard 2020; Granovetter 1985; Hall and Soskice 2001a; Hamilton and Biggart 1988; O’Reilly et al. 2015; Sugeno and Araki 2017; Sugeno and Yamakoshi 2014; Whitley 1992, 2003; Witt 2014). Institutional logics in the form of shared beliefs or “rules of the game” encompass both formal institutions like laws, contracts, etc., and informal rules such as norms, customs and institutionalized practices (North 1991; Aoki 2000, 143 2001; Aoki et al. 2007). These formal and informal institutions shape organiza- tions and organizational practices in various ways that can be positive or negative, as well as restrictive or expansive, and distinguish the Japanese labor market from other market economies. This paper explores three institutional forces that affect changes across formal laws and informal institutionalized practices, and across norms and customs as they relate to contract workers: 1) Path Dependence; 2) Vested Interests and Power; and 3) Institutional Complementarities, especially in the area of mutually reinforcing norms. An institution is a shared, self-sustainable, summary expectation held by agents of a way the games are repeatedly played in a certain domain. That is, an institution is a social device to coordinate the expectations of the agents in a domain (e.g. organizational transaction, etc.) (Aoki 2000, 143). Aoki advanced Douglass North’s definition of institutions as the “rules of the game” by defining an “institution” as a shared understanding of all the players about how the game is played in equilibrium. North famously asked, If institutions matter, why can’t the best institutions from better- performing countries be learned and adopted by other countries? (North 1990), and argued that even if good formal rules were borrowed from abroad, since indigenous, informal rules such as norms and customs are often taken for granted and thus less visible and more difficult to change, a tension may be created between the two which makes the borrowed institution neither enforceable nor functional. The existing “rules of the game” shaped the incentives of the players, ultimately having the potential to shape new rules as well. For example, formal institutions such as governmental laws and regulations constrain organizations and organizational practices, as opposed to informal institutions, represented by the norms, knowledge base, and practices of organiza- tions and shared norms and unconscious notions of legitimate behavior that shape organizational interactions (e.g. Biggart and Guillen 1999; Fligstein 2001; Granovetter 1985). Aoki describes institutional complementarity as a relation- ship in which all parties share expectations or beliefs, which effectively constitute the “rules of the game” in various social and economic domains. These “rules of the game” reflect an equilibrium state that has been attained in each of these domains, with the equilibrium attained in one social domain being complementary with equilibria attained in other domains; it was not in the interest of any individual economic agent to deviate from the “rule” (Aoki 2002). Institutional arrangements demonstrate varying influence on firms’ structure and behavior across countries (Granovetter 1990; Whitley 1992). These institutional arrangements have been explored in economics (Aoki 1996, 2000; North 1990), in political science in the multiplicities of political approaches to solving similar problems (Hollingsworth, Schmitter, and Streeck 1994; Polanyi; Streeck 1991, 1995), and in comparative sociology (Aguilera and Jackson 2003; Biggart and Guillen 1999; Dobbin 1994; Guillen 1994; Hamilton and Biggart 1988; Hollingsworth, Schmitter, and Streeck 1994; Orru, Biggart, and Hamilton 1997; Smelzer and Swedberg 2005; Whitley 1992, 2003). CONTEMPORARY JAPAN 23 Triangulating theories to explain the evolution of contract work in Japan From an economic perspective, Aoki’s (2001) argument regarding business practices in Japan can be extended to contract work. This paper builds on his perspective by combining and adding to insights on path dependence, vested interests, complemen- tary formal and informal institutions (“rules of the game” in the form of laws and norms and customs), as well as social embeddedness. Starting with path dependence, contract work in Japan is predicated on a two-tiered system of lifetime employment for regular workers in large companies, buffered by non-regular workers who bear the brunt of fluctuations in the economy. Complementing this economic perspective from a political science perspective, Watanabe (2012) and Miura (2005) explore labor rela- tions in terms of the role of vested interests in the political process. Further, comple- menting these from a social psychology perspective, Jeffries et al. (2012) show that various cultures’ rules of engagement shape when and where it is considered appro- priate to side with (or criticize) those in power versus those without power (Hornsey et. al. 2018; Ariyanto et al. 2006, 2010; Douglas and Sutton 2011; Hornsey et al. 2005, 2007, 2012; Hornsey and Imani 2004; Sutton et al. 2006). All of these forces come together in a way that is mutually reinforcing. In the following sections, we explore how various formal and informal institutions have served to impede overcoming the employment divide between regular and non-regular workers. Figure 2 lays out the three complementary theories that help illuminate the evolution of contract labor in contemporary Japan. So why didn’t Japan do away with lifetime employment when economic growth slowed, global competition increased, and companies needed to cut labor costs? Specifically, why didn’t Japan eliminate those parts of the law that support lifetime Figure 2. Path Dependence, Vested Interests and Institutional Complementarity: Theories that complement each other to explain the evolution of contract work in Japan. Source: Authors. 24 P. ROBINSON ET AL. employment, such as the doctrine of abusive dismissal, to replace them with other worker protections? Here, we explore path dependence, vested interests, institutional complementarity, and lack of voice and unintended consequences as partial explanations. Path Dependence and contract work’s relationship with lifetime employment in large Japanese firms This section examines how the two-tiered employment system evolved in large Japanese companies in the context of path dependence. Path dependence posits that “where we go next depends not only on where we are now, but also upon where we have been” (Liebowitz and Margolis 2000, 981; see also Bebchuk and Roe 1999). It sheds light on comparative-historical analyses of the development and persistence of institutions, parti- cularly in the area of institutional “imprinting”. Institutional imprinting posits that the conditions at the founding of a practice, organization or industry, leave an indelible and enduring mark (or imprint) on organizational practices and outcomes over time, even as external environmental demands and conditions change and require new and different practices to be maximally efficient (Stinchcombe 1965; Marquis and Tilcsik 2013). Lifetime employment exemplifies path dependence in providing an example of how the current evolution of HR practices in Japan are pre-disposed or constrained by existing practices. Gordon (1985) and Aoki (1996) have documented that “lifetime” employment (along with seniority-based compensation and promotion systems) was not just the result of a unilateral rationalistic design by management to prevent the frequent mobility of skilled workers. It was partially the result of trilateral interactions involving the govern- ment aiming to pacify labor disputes and eliciting workers’ cooperation toward manu- facturing during World War II. Workers in the 1920s and 1930s organized themselves in protest against management, not from class interests, but rather as a result of aspirations of being recognized as “equal members of their enterprises” (Aoki 1996, 193). After the war, ad hoc adaptation to severe labor shortages led to job sharing and ambiguous job demarcations. Eventually, there emerged an unintended fit between evolving organizational practices and the institutional framework the government had initially developed for a different purpose, i.e. the centralized control of resource alloca- tion (Aoki 1996). The lifetime employment system in Japan saw workers hired straight after completing their formal education and guaranteed a job right through to the company’s retirement age, in return for the employees’ loyalty and devotion to the employer. Under the seniority system, all employees moved steadily up the corporate hierarchy (and attached pay scale) with each year of service. They were relatively underpaid in the early years of their career with the implicit social agreement that they would be guaranteed a wage increase for every year of service regardless of whether their actual productivity also increased over time (Lazear 2009; Kimura et al. 2019). This system encouraged employees to stay with one company throughout their career, because employees who left a company in mid-career There was an “unintended complementarity between the evolving organizational mode and institutional framework. . . of institutions created by the government in the pre- and mid-war periods. . .(which) were originally created for the purpose of mobilization and central allocation of financial and labor resources by the government” (Aoki 1996, 4). CONTEMPORARY JAPAN 25 were unlikely to find another position that compensated them at a similar level of salary, due to the lack of a well-developed secondary labor market. One of the perceived benefits of this system was that it allowed the organization to fully utilize the expertise employees built up over years. The lifetime employment system served to secure for big companies sufficient skilled labor to achieve high productivity and efficiency during high economic growth (Araki 2006). This system lengthened workers’ average number of years of continuous service and enhanced high-level technical skills, since people needed to stay with a company long-term in order to get higher pay and promotions. During the high economic growth of the postwar period, lifetime employment and seniority-based pay inhibited socio- economic disparities, which resulted in the growth of a large, well-educated middle class. Lifetime employment limited labor mobility and precluded the development of a secondary labor market similar to that seen frequently in other developed countries (Doeringer and Piore 1985). However, with the collapse of the economic bubble and the intensified global competition of the 1990s, large Japanese companies faced intense pressure to reduce labor costs. The American Chamber of Commerce in Japan advocated, as an efficient way to deal with economic recession and volatility, doing away with regulations upholding lifetime employment because regular (lifetime) employment reduces the flexibility and speed a company needs to adjust its workforce to changing economic conditions. However, rather than eliminating lifetime employment, many large Japanese firms allowed their lifetime employee labor force to decline through attrition and reduced hiring. In addition, they increased their use of various forms of contingent workers in order to keep labor costs in check and remain economically competitive, as can be seen in the increased use of non-regular workers from 15% in 1984 to 37% in 2021 (Statistics Bureau of Japan 2021). Path dependency within companies was reinforced by vested interests perpetuating and exacerbating the disparity between regular and non-regular workers within compa- nies, drawing on Aoki’s (1996) argument that institutions and practices within the Japanese business system are held in place by vested interests. In companies, vested interests took the form of management interests that were prioritized over shareholder and contract worker interests. Aoki (1996) argued that the Japanese institutional frame- work, in particular, is built in such a way as to protect the incumbents committed to existing organizational forms by restricting the entry of outsiders and mitigating compe- titive pressure on insiders to exit. Specifically, rather than reduce labor costs by doing away with lifetime employment, large Japanese firms have adjusted their operations (Usui and Colignon 1996) by: (a) reducing the number of new hirings and stop filling vacancies, (b) early retirement programs, (c) dispatching excess employees to affiliated companies until hard times are over, (d) increasing use of contract workers/temps/other forms of non-regular workers that can be more easily let go. This essentially forces non-regular workers to serve as the buffer that is hired and laid off as the economy demands. As shown in the case study featured earlier in this article, 100% of the administrative work in the organization was done by contract workers. 26 P. ROBINSON ET AL. Similarly, off-the-record interviews with HR managers at major companies in Japan indicate that regular and contingent employees in large Japanese firms have ended up often doing exactly the same or similar work for very different pay. Thus, path dependency illustrates how the current employment system evolved and why current practices are difficult to change. The following section explores the balance between employers and unions in the labor policy-making process following the bursting of the Japanese economic bubble in the 1990s and how it is related to vested interests. It then sets out some of the unintended consequences of the 2012 amendments to the Labor Contracts Act 2007 that may have occurred due to the exclusion of parties such as unions in the policy making process. Vested Interests in the Making of Labor Policy Vested interests are noticeable in the making of labor policy (Kume 2005). For example, in the 1995 proposal by Nikkeiren (Japan Federation of Employers’ Associations) to maintain lifetime employment practices for a smaller core of regular workers, while increasing the ratio of non-regular workers. This was intended to allow Japanese companies to reduce labor costs and expand employees’ functional flexibility to support Japanese companies being able to compete more efficiently. Nikkeiren argued that it was difficult for compa- nies to reduce their own regular workers’ wages (Watanabe 2012, 27; Hamaguchi 2003, 2004). Vested interests were further visible in limiting policy input during the Koizumi administration (2001–2006). In 2001, the Council on Economic and Fiscal Policy (Keizai Zaisei Shimon Kaigi, CEFP), at the time the main Cabinet council tasked with formulating basic economic and fiscal policies (including labor-market policies), limited participation and deliberation in its activities to the Prime Minister, the Minister of Finance, the Minister of Economy, Trade and Industry and prominent corporate leaders such as Hiroshi Okuda (the former CEO of Toyota Motor Corporation and the former chairman of Nikkeiren and later Keidanren), along with labor scholars and economists who supported the deregula- tion of the Japanese economy (Watanabe 2012). As a result, Japanese corporate interests were represented strongly in the deregulation policy-making process, while labor unions were not. Eventually, as the Cabinet-level Labor Policy Council came into effect in 2001, employers and public representatives of the Labor Policy Council gained the ability to hold meetings without the labor unions present if labor unions threatened to boycott Labor Policy Council meetings. Lack of Voice for Contract Workers: Union and Employer Representation in Labor Policy Making In the post-war period through 1989, Japanese union representation of workers was traditionally rather weak, in part because Japanese unions have been largely enterprise or company-specific unions and so tend to be focused on corporate Prior to 2001, labor unions possessed veto power in policy deliberation in the advisory councils of MHLW. With this veto power, labor representatives in the advisory councils were able to block bills consulted on by MHLW by not sending any representatives to attend the meeting (Miura 2005, 174–175). In the 2001 ministerial reorganization of MHLW, Labor Representatives in the advisory councils also lost their veto power. CONTEMPORARY JAPAN 27 economic performance rather than on the interests of workers across companies (Araki 2002, 6–14; Rebick 2005, 13, 23; Asahi Shinbun 2006). Enterprise unions divide workers by company and thereby reduce the collective political power of workers across an industry as a whole, relative to employers (Crump 2003). If enterprise unionism initially had been organized on the principle of job-control industrial unionism, it would have resisted any move to destroy specific job rights (Aoki 1988, Ch. 3). Enterprise unions are further weakened by Japanese companies’ ambiguous job descriptions, which have made it easier to let non-regular workers go because it is easier to replace one worker when the remaining workers can be assigned to a position that does not have a specific job description. Moreover, job rotations across functions make it difficult to identify an individual’s specific contributions to the organization. In addition, many union members progress through company ranks to join management, creating an inherent conflict of interest, such that if active union members aspire to promotion to management in the future, they may be unwilling to challenge management on behalf of vulnerable workers during their time in the union. While union representation of workers in the political process is weak, non-regular workers, who are usually excluded from enterprise-based unions, have even less voice in the policy-making process. Rengō (The Japanese Trade Union Confederation) represents union members to MHLW, while Keidanren represents employers to MHLW. Keidanren moves ideas from MHLW downwards throughout its constituencies and Rengō does the same through its constituencies. However, there is no body that represents non-unionized workers to MHLW, leaving non-regular workers with no voice in the regulatory process (Watanabe 2012). Based on their exclusion of non- regular workers from union membership, Rengō traditionally did not even survey contract workers to find out what such workers wanted or needed. Furthermore, Rengō did not actively organize non-regular workers because unions were afraid that non-regular workers might replace regular workers and thus tended to consider “non- regular workers to be a buffer to economic recession” (Araki 2002, 10). As a result, other than the Labor Standards Bureau, there is no one representing contract workers in the regulatory process in Japan. In addition, the diversity of member unions’ opinions diluted unions’ ability to clearly express a unified position against labor deregulation (Kume 2005, 33, 100–101, 140–141). Consequently, labor unions were not included in the labor policy-making process in the Sōgō Kisei Kaikaku Kaigi (Council for Regulatory Reform, a deregulation committee) in 2001 nor in the CEFP. Moreover, the weak political power of labor unions resulted in substantial changes in labor-policy making structures by employers. In 1989, Rengō (The Japanese Trade Union Confederation) became the largest national union federation, as a result of merging 1) the private sector Rengō (the former Dōmei, Japan Confederation of Labor), with 2) the public-sector unions of Sōhyō (General Council of Trade Unions), previously the largest national union federations. For example, private-sector unions in internationally competitive, export-oriented industries supported the introduc- tion of temporary agency work in 2003 (Hamaguchi 2004, 79), even as other public-sector unions and private-sector unions in protected industries opposed the deregulation of temporary work (Sako and Sato 1997, 18). The advisory councils usually strove to achieve compromises between the policy requests made by both laborer and employer representatives by combining deregulatory and protective measures. However, employers relied on the Deregulation Committee to avoid such time-consuming decision-making and to promote more rapid implementation of the government’s labor-market deregulation policies (Miura 2005, 176). 28 P. ROBINSON ET AL. Unintended Consequences of Amending the Contract Labor Act The government certainly intended to improve the situation of non-regular workers via the 2012 amendments to the Labor Standards Acts 1947 (労働基準法 [rōdō kijun hō]), the Labor Contracts Act 2007 and the 2015 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985. However, in practice, these amendments appear to have achieved the exact opposite of their intended effect: the introduction of the 2012 amendments has spurred many employers to put in place measures and practices that place upper limits on a non-regular worker’s tenure, where previously such limits had not been formally imposed. Specifically, instead of converting contract workers to regular employees, many employers have terminated contracts just before the three-year or five-year mark. Thus, instead of having short-term contracts that were repeatedly renewed over long periods (even decades) as had been done in the past, now contract workers are forced to change employers every three or five years. Accordingly, restricting employment tenure for non-regular workers, particularly in a country with a limited secondary labor market, has significantly increased employ- ment insecurity. Employers are less likely to train contract workers. Also, constantly having to start over in a new company greatly reduces a worker’s opportunity to gain seniority. Finally, as contract workers age, these older workers will likely become less attractive to hire than younger workers, because their experience may not be sufficient to compensate for the relative youth, efficiency and productivity of younger workers. The lack of penalties on employers for violating the spirit of the law means that employers perceive little downside to having a periodic turnover in certain staff, focusing instead on the savings in staff benefits and salary. Figure 3 illustrates these unintended consequences. In effect, the diversification, deregulation and liberalization of Japan’s labor market has resulted in exacerbating a “two-tier” employment system and in widening instead of narrowing the gap between those inside the system (regular workers) and those outside the system (here, contract workers). In order to be able to adjust to changes in economic conditions, many Japanese companies only employ a certain core cadre of regular employees and supplement those with fixed-term contract workers who allow the company flexibility for adjustments. As economic volatility and prolonged recession made the future uncertain, the deregulation of the labor market has seen a rise in the use of temporary, contract, and dispatched workers in the Japanese workforce. Accordingly, the workplace environment at large companies has gradually increased the use of fixed-term employment contracts without substantial social protection for the resulting non-regular workers. Older workers in particular, who must simulta- neously deal with a possibly delayed retirement due to the rising age for pension eligibility (see the section Changes in Laws Regarding Contract Workers Since 2000), have been affected adversely by this system. Were MHLW more thorough in their audits, they would conduct broad-spectrum compliance with all labor laws, asking to see all fixed-term contracts and reviewing them regarding how they are being renewed or not renewed and how many contract workers were let go right at the three-year mark. The intention was that employers not be allowed to terminate contract workers just at the point those contract workers would be legally eligible for regular employment. CONTEMPORARY JAPAN 29 Figure 3. Unintended Consequences regarding Contract Workers. (B: Balancing Loops that balance conditions out. R: Reinforcing Loops that exacerbate a problem or reinforce a positive outcome.) Source: Authors. Institutional Complementarities and Social Psychology Finally, to address why non-regular workers don’t “speak up” and voice their concerns and needs, we draw on institutional complementarities around social psychology norms to explore mutually re-enforcing norms that coalesced to keep contract workers from speak- ing up and bringing about change. Under the 2012 amendments to the Labor Contracts Act 2007, it is not legal for an employer to refuse to renew a contract simply because it is approaching the five-year mark. If a contract worker’s contract is not renewed without the company providing a sufficient reason, the contract worker has a right to go to the Labor Tribunal, a low-cost form of judicially-sponsored mediation. To encourage their use by workers, Labor Tribunals are set up to make at least some concession to workers who approach them. It is rare that the Labor Tribunal decides wholly in favor of either the employer or the worker: the decision is almost always a compromise, with only the weight of the damages signaling who has really won. Labor Tribunal decisions are very quick, with decisions being made in a maximum of three meetings concluded within three to six weeks. So why don’t contract workers speak up or act on their own behalf? Drawing from the perspective of social psychology, we suggest that a first likely explanation is that contract workers are in a vulnerable position and can be let go at any time. Even though there are many people in tenuous contract employment situations, as mentioned earlier, non- regular workers are often neither organized nor members of a union. In contrast, manage- ment is usually quite organized, as well as being in control. This is compounded by the hierarchical nature of Japanese society (Curhan et al. 2014) which reinforces keeping quiet and not speaking up to authority. According to Ikezoe (2018), from the perspective of typical Japanese employment practices, mandatory retirement age systems are company systems that support long-term employment. However, organizations that kept older workers on until the retirement age of 65 often have workers retire at the previous mandatory retirement age of 60 and return under a continuous employment policy at significantly reduced wages until age 65. This is less expensive than increasing the retirement age or doing away with a mandatory retirement system. While workers can thus retire voluntarily on fixed-term contracts and lower pay rather than being forced to retire, and are then hired, they receive fewer benefits and usually have less responsibility. 30 P. ROBINSON ET AL. A second possible explanation for why contract workers do not speak up relates to the potential stigma associated with the lower status of being a contract worker. Jeffries et al. (2012) found that, in highly hierarchical societies, it is more normatively permissible to criticize less empowered, lower status groups than it is to criticize higher status/ more empowered groups. Moreover, lower status groups themselves are more likely to concur and attribute traits of incompetence to their own or other lower status groups. In practice, this may manifest as “stigmatizing” or blaming contract workers for their situation, instead of seeing it as a result of a system that rarely transitions workers from non-regular to regular status. Certainly, given the hierarchical nature of the Japanese workplace, it would go against societal norms for Japanese contract employees to speak up to their bosses or regular employees. Specifically, it may be that Japanese society tends to be more critical of contract workers as “outsiders” and stigmatize them as being to blame for their contract work situation, which implies that they consider contract workers’ skills and abilities as being somehow “less than” those of regular employees. This is exemplified by the recent emergence of very popular but rather deprecating phrases, such as “Winners” (勝ち組 [kachigumi]), “Losers” (負け組 [makegumi]), “Privileged class” (上級国民 [jōkyūkokumin]), etc. By extension, theoretically, the stigma of contract work may affect the contract worker as well as the perceptions of other observers, by reducing the ability of contract workers to be heard or to improve their situation. Who would like to put their hand up and admit that they are in a stigmatized situation, if they believed that admitting their situation might cause others to think less of them? A third possible explanation for why contract workers do not speak up relates to the collectivist nature of Japanese society (see for example, Takano and Osaka 1999; Hamamura 2012). Collectivism in Japan is characterized by conformity and a strong norm against disturbing the harmony (wa) of the group (Konishi et al. 2009). Anyone who disturbs the harmony of the group is likely to be perceived as “the bad guy”, even if they are in the right. Accordingly, it appears that many Japanese, including those that are in fact “in the right”, just keep quiet and do not make a scene. Related to collectivism are the Japanese concepts of uchi (insiders) and soto (outsiders) (Ishida 1984; Takata 2003), which are more pronounced in large Japanese companies, perhaps due to Japan’s racial homogeneity and lack of large-scale immigration and mobility. Many Japanese compa- nies desire to appear loyal to their regular employees (uchi), as demonstrated in their aversion toward downsizing. Companies may believe that if word gets out that they were downsizing the number of regular employees in any way, it would make them a less attractive employer to potential talented regular employees. Thus, maintaining lifetime employment for “insiders” has resulted in employers needing to address labor costs in the case of economic downturn, placing the burden of downsizing on “outsiders” (non- regular employees). This has been further reflected in and exacerbated by Japanese unions not organizing non-regular workers and instead viewing them as a buffer against economic recession for regular employees (Araki 2002, 10), further confirming non- regular workers’ status as more “outsider” than “insider”. These collectivist and hierarchical norms are mutually re-enforcing, making it difficult for one norm or set of institutionalized practices within the system to change without changing other interlinked norms or institutions at the same time. In Japan, collectivist norms around conformity keep people from speaking up, as do hierarchical norms that keep individuals from challenging authority figures such as companies or the CONTEMPORARY JAPAN 31 government. Moreover, informal institutions, such as norms, customs and institutiona- lized practices, reinforce formal institutions such as laws and labor unions in a way that sustains existing structures and practices and impedes change (Whitley 1992). As a result of these mutually reinforcing norms against speaking up, many Japanese non-regular workers are reluctant to acknowledge the unfairness of receiving lower wages for the same work as their regular employee counterparts. This is illustrated in a 2010 study conducted by the Japan Institute of Labor Policy and Training (JILPT 2010) that found that: of part-time workers with lower wages than regular workers, only 27% felt this wage discrepancy was unfair; of fixed-term workers with lower wages than regular workers, only 40% felt the wage discrepancy was unfair; and of dispatched workers with lower wages than regular workers, only 23% felt the wage discrepancy was unfair. The Future of the Two-Tiered Employment System in Japan It appears that wage dispersion in Japan is now on a trajectory similar to that in the U.S. and other industrialized countries, although the disparity between average employee compensation and CEO compensation is certainly less in Japan. However, there are also important differences (Godard 2020). First, while employers in western markets like the U.S. can renew employee contracts as many times as they want, in Japan, contract workers can only renew their contracts up to five years before being forced to change employers, effectively dis-incentivizing employers from investing in any kind of training and devel- opment for them. In addition, in western labor markets such as the U.S., there is a more well-developed secondary labor market that allows for mid-career job change with little or no stigma attached to changing jobs. In Japan, the secondary labor market is relatively underdeveloped and informal interviews from our case study suggest there is a perceived stigma attached to changing jobs, as if one had been pushed out of their company because they could not get along with colleagues or did not produce high quality results. Proponents of maintaining lifetime employment, such as Keidanran, may claim that regular (lifetime) employees merit better wages and benefits because they are doing significantly different (and more valuable) work; such employees are, for example, respon- sible for people management and project results. These same proponents might also point to the 2012 amendments to the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985 as evidence that contract workers’ interests can be served without having to do away with the lifetime employment system. Specifically, they might cite the Act’s stipulation of improved contract worker protections, such as stricter liability (including deemed employment) for the agency and the client company in the case of breach, as well as further amendments to remove distinctions Whitley (1992) notes: “Cohesive and mutually reinforcing nature of many characteristics of East Asian business systems. . .suggest that, once established in particular institutional contexts, effective business systems may develop considerable cohesion and become resistant to major changes. Thus, once a particular business system has become established and certain rules of the game are institutionalized, major changes in firm type and patterns of behavior are unlikely to occur in the absence of substantial institutional changes” (Whitley 1992, 240–247). 32 P. ROBINSON ET AL. between specialists and generalists and the (in effect) three-year limit on contract length, as proof that the lifetime employment system can be maintained while addressing contract workers’ needs. Prior to the 2020 reforms, opponents of maintaining lifetime employment were inclined to point out that contract workers are generally doing exactly the same work as lifetime employees but for vastly inferior wages and benefits, with contract workers suffering the addition of job insecurity and lack of career progression. As can be the case with SME (small and medium enterprise) subcontractors to large Japanese manufacturers, opponents of maintaining lifetime employment consider that contract workers unfairly bear the brunt of labor cost reductions in economic downturns. Aoki (1996, 236) predicted that this dilemma (of a two-tiered employment system) “is not likely to be resolved simply by a ‘big bang transition’ to the Anglo-American [system] . . . because the Anglo-American-type framework will not easily fit with the existing organizational convention and the [Japanese] government will be unable to change the organizational convention by the stroke of a legislative pen”. Specifically, he foresaw that complete convergence toward a western model would be difficult due to the variance in historical conditions among economies and the need for structural consistency between regulations and other institutions (Aoki 2000, 5). Aoki (1996, 236) concluded that, “The possible reform of institutions in Japan seems to lie only in an extension of its own evolutionary path and that should be the way for Japan to contribute to the gains from system diversity on a global scale”. The argument we have presented in this paper would support Aoki’s conclusion and extend his arguments to explain the problems for a less- commonly studied group of Japanese workers that stands to gain the most from effective institutional reform: contract workers. Discussion and Summary: Forming a More Complete Theoretical Explanation Japan illustrates how the embeddedness of HRM practices in an institutional context makes it difficult to change one part of a system of interlinked institutions. This paper combines several theoretical explanations to explore why the divide between regular employees and contract workers has become even more disparate in a society that considers itself egalitarian. We began by examining the turnover of contract workers in a single organization since the 2012 amendments to the Labor Contracts Act took effect in 2018 and then looked at how the situation could be generalized to other organizations. We then traced the evolution of the laws in the context of theoretical factors such as path dependence, vested interests and lack of voice. With regard to path dependence, the particular conditions in post-war Japan and the nature of relationships between govern- ment, labor and corporations created the conditions for a system of lifetime employment that has acted to exclude the development of institutions that could challenge it or bring about its demise. Specifically, maintaining the system of lifetime employment created a situation in which employers only address labor costs by putting the burden of inequality on contingent employment. Thus, the continued predominance of the lifetime employ- ment system perpetuated itself in large Japanese companies and constrained opportu- nities for alternative equivalent modes of labor and labor equality. CONTEMPORARY JAPAN 33 Second, we explored power dynamics and vested interests. We argued that Japan’s distinct employment customs and practices have been reinforced through vested inter- ests, because: 1) vested interests pursue patterns that reinforce their power, 2) existing notions of legitimate behavior are strongly held, and 3) the complementarities between institutions make the system self-reinforcing. Here, vested interests further perpetuated labor inequality by supporting regular (lifetime) employees and not contingent workers, especially contract workers. Although unions substantially consolidated and unified the labor movement with the establishment of Rengō in 1989, their influence declined subsequently, resulting in them losing veto power and representation in the process of labor-market deregulation. Their power was diluted further by diverse opinions and conflicts of interest among their member groups, and membership declined with the increasing number of unorganized non-regular workers. In sum, the weakening of unions over time increasingly excluded the voice of contingent workers from the decision- making processes. Thus, the workers most impacted by Japanese labor-related legislative change were the ones who had the least voice. Finally, we explored the disempowerment of contract and part-time workers to speak up on their own behalf to better their position. Here, collectivist norms of conformity in not questioning the group combined with the difficulty of speaking up when one’s job is vulnerable all contribute to a lack of voice by contract workers. This is further reinforced by social psychological theory that posits it is more socially acceptable to criticize groups with low status and power than groups with high status and power in very hierarchical societies (Jeffries et al. 2012). As is the case with subcontractors in Japan who struggle to maintain full-employment at large assemblers when the economy declines, it is contract workers who are the first to be impacted negatively when budgets shrink, in order to ensure that regular workers maintain full employment. Contract workers have never been on par with regular workers in Japan in terms of pay and benefits for similar work in spite of legal provisions mandating that this be so, but the disparity has been exacerbated by the unintended consequences of the 2012 amendment to the Labor Contracts Act 2007. Contract workers lag behind their regular employee counterparts from their first job, and the divide only increases as they age. In order to address this, MHLW issued in 2018 Guidelines on the Prohibition of Unreasonable Treatment of Part-Time Workers, Fixed-Term Workers, and Dispatched Workers, which aims for equal pay for equal work. The intent of the guidelines is to address disparity among workers; however, similar to many previous labor-related laws in Japan, there is no direct penalty for non-compliance, and workers need to appeal to the Labor Standards Bureau to attempt to have the law enforced. As a result, while some favorable changes with respect to payment and benefits for contract employees may occur, it is likely to happen very slowly. Moreover, the guidelines do not address the broader issue of employment instability experienced by contract workers. One contribu- tion of this paper is to extend theories relevant to understanding the evolution of the two- tiered labor system in Japan to the less-studied area of contract employees. Disclosure statement No potential conflict of interest was reported by the authors. 34 P. ROBINSON ET AL. Notes on contributors Patricia (Tish) Robinson (Ph.D. MIT Sloan School) serves on the faculty at Hitotsubashi University School of International Corporate Strategy. She has received the Academy of International Business Farmer Award, the Academy of Management Richman Award, three Fulbright Fellowships, a Japan Foundation Faculty Fellowship, and a Shintaro Abe Fellowship, among others. Professor Catherine Sibala teaches business ethics and ethical leadership at the School of International Corporate Strategy (Hitotsubashi ICS). Prior to joining Hitotsubashi ICS, she was Senior Analyst at Okamoto Associates, Inc. and served for more than 15 years in the Australian government, including as a diplomat - Political First Secretary - to Japan. Dr. Kiyohiko Ito (Ph.D., University of Michigan) is Shidler College Distinguished Professor at the University of Hawaii at Manoa. His areas of research include strategic management of multinational corporations, Japanese spinoff subsidiary management, and “millennium” companies. His work has appeared in Management Science, Strategic Management Journal, Journal of International Business Studies, and other journals. Professor Vicki L. Beyer teaches employment, corporate and business law at Hitotsubashi University as well as lecturing at other universities. Prior to joining Hitotsubashi, she spent 17 years as an in- house lawyer in Tokyo, specializing in employment law, employee relations, and corporate govern- ance, covering several Asian jurisdictions ORCID Patricia (Tish) Robinson http://orcid.org/0000-0003-2077-9894 References “Act on Improvement, etc. Of Employment Management for Part-Time Workers” of 76 of June 18 June 1993, Article 8. “Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (Act No. 88 of 1985).” http://www.japaneselawtranslation.go. jp/law/detail/?re=02&dn=1&x=53&y=6&co=1&ia=03&yo=&gn=&sy=&ht=&no=&bu=&ta=&ky= act+for+securing+the+proper+operation+of+worker+dispatching+undertakings&page=21 Aguilera, R. V., and G. 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Types of workers Modes of employment in Japan take on various definitions, so it is useful to begin by defining categories of workers in Japan rather than categories of employees, as there are a number of groups of working people in Japan who are not employees. The Japanese definition of worker (in Japanese, rōdōsha) is not so different from the U.S. definition of employee; as set out in Article 9 of the Japanese Labor Standards Act 1947, a worker is “one who is employed at an enterprise or place of business and receives wages therefrom, without regard to the kind of occupation”, while the Labor Union Act 1949 defines a worker as “those persons who live on their wages, salaries, or other equivalent income, regardless of the kind of occupation”. Regular employees (正社員 [seishain]). Regular employees generally only exist in large Japanese companies. While lifetime employment is nowhere written into the law, it is a common employment practice that the law has supported in a number of ways (Carter and Nasuda 2014). A regular worker is commonly considered in Japan to mean an employee who is hired directly by his/ her employer without a predetermined period of employment, and works for scheduled hours (Asao 2011). Traditionally, the “pillars” of lifetime employment are an expectation of continued employment through retirement age, seniority-based pay, and enterprise-based unionism. Contingent workers. Similar to the U.S., at present in Japan about 40% of the workforce are contingent workers of some sort (Japanese Ministry of Internal Affairs and Communications, Statistics Bureau 2018). Modes of contingent work include: ● Dispatched (派遣社員 [hakenshain]) or temp workers ● Fixed-Term Contract Workers (契約社員 /労働者 [keiyakushain/rōdōsha]) ● Part-time (パート ) and other limited regular workers (非正規の職員 [hiseiki no shokuin],非正規 の従業員 [hiseiki no jyūgyōin) Dispatched (or temp) workers. Dispatched workers, known in Japanese as haken, here are defined as workers dispatched from a licensed dispatching agency, as set out in the provisions of the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (1985). These workers may be employed on a fixed-term or open- ended contract, and on a full-time, part-time, or indirect basis (Asao 2011), and are defined under the Act as workers employed by one person so as to be engaged in work for another person under the instruction of the latter, while maintaining his/her employment relationship with the former. Fixed-Term Contract (契約社員)(entrusted 嘱託 [shokutaku] and temporary workers 臨時社員 [rinjishain]). Contract workers and entrusted workers are those who are employed on a relatively long fixed-term, full-time, and direct basis. Contract workers are defined as employees specifically hired to perform a specialized type of work, whereas entrusted employee is a term often used to refer to an older worker who is re-hired by their previous employer after their retirement at the company’s mandated retirement age (Asao 2011). Fixed-term contract workers have been a common coping mechanism to address economic volatility since long before haken, or “dispatched workers”, came into being and many large employers have used (and continue to use) them. Since 1974, there have been a number of situations for which courts have found fixed-term contractors are entitled to ongoing employment: Interestingly, in both jurisdictions, the definition of employee may vary by statute. That is, different statutes have different definitions and apply to–or protect–different groups of people, as just demonstrated by the two definitions from the Labor Standards Act and the Trade Union Act. Instead of being written into the law, there are some judicial decisions where judges have laid out up to four tests that must be met for downsizing. And there are subsequent judicial decisions which say that actually those four tests are really just guidelines and if an employer meets one or two tests and shows that they tried, layoffs would be allowed. Under the 2012 amended provisions (Article 40–6) of the Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers Act 1985, a direct employment offer shall be considered to be provided by the client company to the dispatch worker when there are illegal items in the worker dispatch arrangement, including breach of the term limit. As such, an employment relationship may be deemed to exist directly between the dispatch worker and the client company who will lose its previously enjoyed flexibility to terminate the dispatch worker’s employment. CONTEMPORARY JAPAN 41 When the work done by the fixed termer is basically the same as that done by a regular employee. When there are successive renewals, often relatively automatic – depending on the facts of the specific case, some courts have said the nature of the contract changes at some point, while other courts have found that it was regular employment from the beginning. In such cases, the employer is often required by the courts to provide ongoing contract renewals unless there is some fair and appropriate reason not to renew. Even in situations like these, many companies have continued to use these kinds of fixed-term contracts in a way that aims to avoid any obligations to have these fixed-term contracts become ongoing. Temporary workers are those who are employed on a relatively short fixed-term, fulltime, direct basis (Asao 2011). For example, even though the concept of deemed employment is encouraging, the relaxing of the term limit means that many workers may actually become permanent temps rather than attain employment more analogous to regular employment. Women make up more than 70% of temp workers for the period 1984–2021. Part-time and other limited regular workers. Part-time workers have always existed in Japan. Under the Act on Improvement, etc. of Employment Management for Part-Time Worker (1993), a part- time worker is defined as a worker whose prescribed weekly working hours are shorter than those of ordinary workers employed at the same place of business. Part-time workers can be fixed-term or open-ended, part-time directly employed, and may fall under this classification on the basis of job title, shorter duration of work hours (compared to “ordinary”, regular workers) or working fewer than 35 hours a week, which is the standard definition of a working week (Asao 2011). As the percentage of regular (lifetime) employees continues to decrease, the percentage of other categories of workers, including part-time workers, has increased. Another new, special category of workers who have contracts without end dates is limited regular workers. They are similar to other regular employees except that their contracts stipulate their role or work location. This means that they are not expected to be trained or rotated through various departments of the company as other regular employees are, which has the effect of locking them into dead-end positions without any opportunity for advancement. Additionally, they can more easily be terminated if their role or work location ceases.

Journal

Contemporary JapanTaylor & Francis

Published: Jan 2, 2022

Keywords: Japan; modes of employment; lifetime employment; contract workers; workplace inequality; labor relations; comparative institutional analysis

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