Did you know that Japan is notorious for its lifetime employment process, however, many Japanese firms are searching for more flexible alternatives at the moment. This article will discuss the general concept of how Japan's lifelong employment system was implemented in the past and how it is changing in its present state.

Japan's Lifetime Employment System

With labor shortages after the Second World War, lifetime employment (終身雇用, しゅうしんこよう) schemes became common, particularly among large corporations, encouraged by the economic boom of the decades to come. Moreover, in the 1970s, the rules were established, limiting companies' rights to fire employees and establishing a lifelong employment system across the country.

This scheme began in the first half of the 20th century to counter low retention rates due to frequent job changes by workers trying to improve their working conditions. To retain their staff, enterprises have begun to adopt pay-rise and pension systems. Initially, this was not achieved at a national scale but was accomplished by individual companies.

It is now common in Japan for new graduates to join a business and work there until retirement.

The Lifetime Employment Framework's Decline

Companies are responding to these current issues by transitioning to performance-based benefits and encouraging qualified job changes.

While long-term employment is decreasing, elements of it are still reflected in labor law, and the lifetime employment tradition still continues to exist in many ways. As it remains uncommon to fire employees in Japan, some businesses have begun to recruit fewer full-time staff and more people on short contracts.

This only created a new problem for Japan, with a growing number of people unable to find a stable job.

Lifetime jobs have become unsustainable, and the reform has begun, but it seems that Japan has not yet found a new model to replace the old one.

Mid-career Job Transition

Under the lifetime employment system, late joining and career transitions put people at a disadvantage. Simultaneously, it made companies hesitate to hire first, reducing the work opportunities of foreign job-hunters.

Many Japanese companies are continually searching for ways to integrate foreigners into the workplace. In this improving atmosphere, it is up to foreigners employed in Japan to promote lasting change within their firms, one step at a time.

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Digital Era, No Longer Sustainable

Lifetime employment is no longer sustainable, said Hiroaki Nakanishi, chairman of Keidanren (Japan Business Federation), at a press conference in 2019. Later that year the top business lobby revealed new recruitment requirements for college graduates. Nakanishi's statement made waves throughout the Japanese business community, raising anxiety among white-collar workers, better known as wage-earners. The reality is that a lifetime employment system was not sustainable for much of the just-ended Heisei Era.

The majority of businesses and corporate leaders have been facing the constraints of conventional employment policies for a long time. Now that the Keidanren leader has also publicly accepted this inconvenient reality, this raises a question if the rest of Japan will step out of its state of denial and change of direction, accelerate and catch up with the rest of the world. Is the government prepared to introduce labor policies sufficiently modernized to match the current Reiwa era?

Moreover, Yumiko Harukami - head of the Organization for Economic Co-operation and Development (OECD) Tokyo Centre, has also claimed that the digital transformation in all countries has begun to have a tangible impact on employment. For Japan, studies indicate that approximately 15 percent of today's jobs are likely to be replaced by automation, according to her words in a Japan Times article, and an additional 39 percent will likely experience significant technology-driven changes. Therefore, the rapid intensity of these adjustments makes it impossible for companies to predict what kinds of skills will be needed for their businesses in the future. Japanese firms, limited by restrictive employment policies, were unable to recruit opportunistically new talent from outside their industries to meet newly emerging capability demands.

Internally, companies should be providing regular opportunities to develop their workers ' skills. More than two-thirds of Japanese employees believe they need additional training, double the OECD average. However, the OECD Adult Skills Survey shows that participation in lifelong learning in Japan is in the lowest quartile of the surveyed countries list. The fact is that companies have no motivation to train irregular employees who have no opportunities for lifetime employment. Additionally, time constraints are critical deterrents to lifelong learning for daily employees who usually put in long hours.

In the current state, mid-career employees fill 37.6 percent of job openings, which shows yet Japan’s biggest transition to the new model from the traditional one.