The provision of security is an intricate concept since economic reliability or protection takes on many dimensions over a person's lifetime. Certainly it involves the assurance of income, both within the labor market and through social programs. This chapter focuses on the role of security within a firm's employment system while also referring to the interaction between employer-provided security and public income-support programs. Since the type and degree of security provided affect the functioning of the labor market, the economy, and society, security has economic importance even above satisfying the human need for stability.
In the United States and Japan, security is provided in part through a company's HR system. Security provisions affect the company's hiring and training decisions and the workers' efforts, as well as the company's costs and workers income. In this chapter, we first analyze the benefits and costs associated with two types of security--employment security and income security--and then examine how a firm's optimal security structure is shaped by macroeconomic and institutional constraints. Next, we discuss how security works in Japanese and U.S. companies and analyze the interaction of security with the other components of the employment system. In particular, we look at how the employment system as a whole motivates workers and provides flexibility in total labor costs over the business cycle for the firm. Finally, we discuss how the Japanese security system performed during the recession in the early 1990s.