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May 3, 2009

Robert L. Sharp: Different forms of joblessness

I'm impressed Sun-Star senior management is sharing the pain with pay cuts. That's unusual in this country and sounds like something they would do in Japan.

One of the ongoing characteristics of the Japanese economy has been the low unemployment rate. Although rising now, still something like less than half that of the United States.

However, there are underemployed redundant workers on Japanese payrolls, who are not, in fact, contributing much to company productivity, which often obscures unemployment figures.

While so-called lifetime employment appears to be changing in the face of current economic realities, it is still an ideal. The classic employment system of large well-established Japanese companies has been characterized by relatively automatic promotion and salary increases through the simple process of the employee growing older -- gaining seniority, rather than by merit alone. Kind of like our schoolteachers.

Some would see this a form of communism in an otherwise capitalistic society, where compensation was given according to need -- those with more family responsibilities earning more, and work performed according to ability -- by the bright young man earning less. Classic Marxism.

(That the typical Japanese office actually functions like an inverted pyramid, the whole structure being supported from the bottom by conscientious young women paying close attention to detail without guarantee of continued employment, is another story.)

Naturally, some staff members, while rising in the ranks, are not capable, nor actually permitted to handle jobs beyond their ability.

These employees are given a desk at the periphery of the office -- by the window -- their days spent reading the newspapers and looking out at the passing scene. They are called "madogiwazoku," or the "window-side tribe" in colloquial Japanese terminology.

This lifetime employment scheme has been part of an unwritten social contract wherein Japanese companies made every effort to keep from firing employees. This buffered the limited Japanese social security and pension schemes. The Japanese government was saying implicitly, "You keep the person on the job and we'll make it worth your while at tax time."

Naturally, the reasons for lifetime employment have been much more complex than that, as the late management expert Jim Abegglen, the inventor of the term "Japan Inc." reported at great length in his seminal writings on the subject.

One important reason has been an historical scarcity of labor that still plagues Japan today at the lower levels of production. Once, hordes of illegal immigrants from Iran and Pakistan crowded the public parks on weekends, but appeared invisible to the authorities. They are now gone, and the ethnic Japanese from Brazil and Peru are on their way out.

Typically, a Japanese company goes to great lengths to avoid firing anyone. First they cut overtime, then they do not replace retiring staff, then they reduce the number of new hires, then the directors and senior officers will reduce their compensation.

New subsidiaries are established to give employees a second career, or employees will be seconded to companies in the same keiretsu, or industrial group surrounding a major bank, or sent to work for suppliers or customer companies who are too closely connected to complain.

Looking at it from a purely economic point of view, the Japanese way is to have companies pay what is in effect a hidden tax. They carry unproductive employees on the rolls. In the U.S., the way is to pay a very visible tax to cover the costs of unemployment welfare payments for those who would be fired in a more harshly rational Darwinian society. They have the same net cost to the economy as a whole.

However, from the point of the benefit to society, there is a big difference. The Japanese worker -- even if sitting at the side of the window -- has a reason to get up and get dressed in the morning. He maintains at least some of his pride of corporate membership and personal worth in front of his wife and family and neighbors ("Goodbye, I'm off to the office").

His time is filled with at least the potential of contributing a little something to his company and society, rather than subtracting from it by hanging around the poolroom, tempted by drink or drugs or crime to fill the empty hours.

Two systems: Equal economic cost -- but it is a far superior social benefit to keep people occupied.

(This article is adapted from one published in the Japan Times Weekly International Edition.)

Robert L. Sharp grew up in Linden (population 1,000) and spent most of the following 30 years as an international banker in Asia including four years as a Naval officer in that part of the world.

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