Academic journal article Washington International Law Journal

Labor Relations and Labor Law in Japan

Academic journal article Washington International Law Journal

Labor Relations and Labor Law in Japan

Article excerpt


This article argues that Japanese employment customs developed naturally through an agreement among the members of the Japanese employment system, and attained efficient economic performance up until the 1990s. During that time, Japanese labor law mainly worked toward facilitating private bargaining instead of engineering the desired result directly through legal regulations. Through this indirect approach toward labor relations, at least part of Japanese labor law made a highly positive contribution to the attainment of economic efficiency. After the 1990s, when long run stagnation occurred in the Japanese economy, the merits of Japanese employment customs diminished and needed reform. At this stage, some aspects of Japanese labor law began to adopt a more market friendly approach to cope with this change. However, in some other important aspects, the law took the stance of directly regulating the economy, particularly in the area of employment protection and working hours. This approach was the exact opposite of the deregulation that was necessary to recover the efficiency of the Japanese economy after the 1990s. Due to this mismatched regulatory approach, Japanese labor law has hindered the performance of the Japanese economy.

The Japanese economy has provided economists with many puzzles. It possesses various apparently unique properties, such as the main bank system, mutual share holdings among group companies in the capital market, vertical relationship among firms (keiretsu), 1 and various interventions by the bureaucracy in the market economy.2 A conspicuous example is the so-called Japanese employment custom, which is usually characterized by permanent employment and seniority.3

Although standard neo-classical economics may regard Japanese employment customs as a source of inefficiency counter to free competition in the labor market,4 this argument is unable to explain why post-war Japan succeeded economically at least until the 1980s.

Since the late 1980s, many economists have argued that a series of properties shown by the Japanese economy should be understood as a rational and efficient system that supported the economic success of postwar Japan.5 In the area of labor relations, Koike argues that the apparently group-oriented nature of Japanese labor relations and organizations can be naturally understood as a superior economic system in adjusting to an uncertain and changing economic environment. 6 Some game-theoretic contributions argue that labor relations in both the United States and Japan can be characterized as two possibly efficient equilibria of the same game played by similarly rational players facing different institutional environments.7

Building on this rationalistic understanding of Japanese employment customs, this article discusses the relationship between Japanese labor law and employment customs. It addresses the question of whether Japanese labor law enforced the establishment of Japanese employment customs, or whether it adjusted itself to the already established system in the process of post-war economic development in Japan. This article simultaneously considers whether or not the Japanese labor law enhanced the efficiency of the system, both in the economic growth process until the 1980s and the stagnation period that began in the 1990s and has continued until now.

The remaining part of this article is organized as follows. Part II, of the article clarifies the contents of Japanese employment customs, referring to major empirical research, and presents the theoretical arguments that support the customs' economic rationality. Part III describes the historical outline of Japanese labor law, its basic principles, and the various aspects of Japanese labor law in general. Part IV.A. justifies our argument that Japanese labor law made highly positive contributions to the establishment of efficient Japanese labor relations. Part IV.B. discusses the rational adjustment of Japanese labor law to the structural change the Japanese economy underwent after the 1990s. …

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