1. 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

2. 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?

3. decentralization
derogation

5. 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.

6. 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.

7. 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

8. Derogation by the decentralized agreement

9. 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?

10. 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

11. 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

12. 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

13. 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

14. 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

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

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

17. 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”

18. 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 ? ?

19. 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

20. Wage Difference between Standard and Non-standard Employees

21. 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

22. 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?