Takashi Araki Univ. of Tokyo February 2, 2017 ILO & the University of Turin Master in Industrial and Employment Relations Decentralized Industrial Relations, Internal Flexicurity, and Challenges Japan Faces Takashi Araki Univ. of Tokyo

Outline Japan’s decentralized industrial relations Three features of the traditional Japanese Employment System Why Enterprise unionism? Derogation and flexibilization of labor law by the decentralized parties Japan’s “Internal Flexicurity” Employment security Flexible adjustment of working conditions Low unemployment and stable industrial relations Challenges Japan faces Increase in non-standard employment New regulations for diversified work force From labor unions to works council?

decentralization derogation

3 Features of Traditional Japanese Employment System Lifetime (long-term) employment: Key Concept An employee enters a company immediately following graduation and enjoys stable employment until he or she reaches the mandatory retirement age (60+). Unemployment rate: 3.1% (2016) Seniority-based wages and HRM The major factor determining wages and promotion has been the length of the employees’ service at the particular firm, which represents employees' accumulated skills. Enterprise unionism An enterprise union organizes workers in the same company irrespective of their type of job. As a result, both blue and white collar workers are organized in the same union. More than 90% of labor unions in Japan are enterprise-based.

Why Enterprise Unions Predominate in Japan? Functional Excellence in Japanese long-term Employment system: Under the long-term employment system, dismissals are avoided at all costs (Security). Employees are subject to the flexible adjustment of working conditions (Flexibility). Each employee’s promotions and wages are decided mainly by the individual's length of service or seniority (Not job but individual's skill or ability to perform work). In such an internal labor market, enterprise-based unions and enterprise-level collective bargaining have been the most efficient mechanism to respond to the demands of employees who develop their work career in a particular company.

Derogation and Flexibilization of Minimum Labor Standards State Laws: norms established at the most centralized level + Diversification of workers, Emp. Rel.=Derogation, adaptation needed. Derogation: Labor-management agreement (LMA) between the employer and the majority representative of workers in the establishment. Majority representative: Majority union or an individual worker chosen by the majority of the workers in the establishment →abuse of derogation

Derogation by the decentralized agreement

Lessons of Japan's experience Flexibilization is necessary but derogatory power should be kept in the hand of the party strong enough to safeguard the proper protection of employees. Introduction of works council? Europe: LU at sector, WC at establishment Japan: LU at company, WC at establishment? ←Strong opposition from LUs : WCs as rival organizations?

Japan's Flexicurity in the Internal Labor Market : ①Security Civil Code (1898) maintains employment-at-will doctrine. Supreme Court established “abuse of the right to dismiss” rule in 1975: “a dismissal that lacks objectively rational grounds and is considered socially inappropriate shall be regarded as an abusive exercise of the right, and thus null and void.” ↓ 2003 Labor Standards Act →2007 Labor Contract Act (Art. 16). If employers in Japan cannot demonstrate just cause for dismissals, such dismissals will be held null and void. Protective Remedies Back pay during the whole period of dismissals Reinstatement

Restriction on Economic Dismissals Four-part Test for Economic Dismissals Business necessity to reduce the number of employees Dismissal must be the last resort: employer must take every possible measure to avoid adjustment dismissals (reducing overtime, transferring redundant employees, hiring freeze, terminating fixed-term workers, pay-cut, etc.) Selection of employees to be dismissed must be made on an objective and reasonable basis Proper procedure to explain the necessity of the dismissal, its timing, scale and method to unions and employees Four-Requirement Rule→Four-Factor Rule Slightly relaxed but still severely restrictive

Flexicurity:②Flexible Adjustment of Working Conditions 1968 Supreme Court decision “reasonable modification” of work rules: “a reasonable modification of the work rules has a binding effect on all workers, including those who opposed the modification” Work rules: a set of regulations set forth by an employer for the purpose of establishing uniform rules and conditions of employment in the workplace In drawing up or modifying the work rules, the employer is required to ask the opinion of the majority representative, but its agreement is not required. =unilateral modification

Flexicurity in the internal labor market Why can employers unilaterally modify working conditions? trade off: security in employment and security in working conditions Which is fair? Suppose 10% labor cost reduction is needed [10% workers dismissed+90% workers maintain 100% pay] USA or [no worker dismissed+100% workers with 90% pay] Japan Mutual trust established on the long-term relationship Japanese version of “Flexicurity”: Flexibility in adjusting working conditions + Security in employment=“Internal Flexicurity” Different from the Danish model “External Flexicurity” To guarantee justice, courts scrutinize "reasonableness" of the modification. ←Majority union's agreement: important factor for reasonableness

Internal Flexicurity in Japan: Low unemployment and stable industrial relations Unemployment Rate Japan: 3.1%(2016) Stable employment の国 しかし、実は大きな変化

Harsh confrontation →Peaceful industrial relations Number of strike participants Number of strikes

Total Capital vs. Total Labor Confrontation Mitsui-Miike Coal Mine Strike in 1960

Productivity Increase Movement: Three Principles (1955-) ① Employment Security: Productivity increases should enhance employment security, and surplus labor being resolved by transfers rather than by lay-offs ② Labor-Management Consultation: Labor-management consultation should be promoted in order to increase productivity ③ Fair Distribution: the fruits of increased productivity should be distributed fairly between the firm, employees, and customers Though leftist unions strongly opposed, modest unions agreed to participate in the movement on the conditions that their opinions should be fully respected. Once unions noted that management upheld their promise not to dismiss redundant workers and to treat unions as a partner, and that the fruits of increased productivity were in fact distributed to employees, the union movement shifted gradually from ideological and confrontational to more pragmatic and cooperative. From “Zero-sum game” to “Win-win game”

Flexibility vs. Security USA Flexibility model At-will employment Flexible adjustment of working conditions through consent obtained under at-will employment Japan “Flexicurity” Model Utilization of non-standard workers Security in employment (standard employees) Reasonable modification rule Europe Security-oriented Model Relaxing economic dismissals　 Security in employment Security in working conditions ? ?

Why did non-standard employment issues surface recently? Standard　(Core) Employees=Lifetime emp. 20% 37% 80% 63% Non-standard (Peripheral) Employees 1990 2014 Sideline Workers (Homemakers, Students) Mainline Workers

Wage Difference between Standard and Non-standard Employees

New laws to protect non-standard employees 2007 Revision of Part-time Work Act (introducing Non-discrimination rule) 2012 Revision of Labor Contract Act (Transforming fixed-term contract into open-ended contract, prohibition of unreasonable working conditions by reason of fixed-term) 2012 Revision of Worker Dispatching Act 2014 Revision of Part-time Work Act 2015 Revision of Worker Dispatching Act 2016: Prime Minister Abe: Introduction of “equal pay for equal work” rule between standard and non-standard

82.7% employees remain unorganized (Union density 17.3%) CBA at enterprise level has no erga omnes effect No practice to refer sector or local level CBA as a model of employment contract CBA↓ Labor Law↑ What kind of regulations? substantive and/or procedural regulation hard law and/or soft law information disclosure =utilizing market function (reputation) derogable regulation←who conclude derogation agreement? =Introduction of works council system?