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Japanese union members demonstrated in front of the gate of a large Canon factory in Southern Japan last week. The camera producer laid off some 1,100 workers. The same day Sony announced that by 2010 it will cut 16,000 employees. For many Japanese employees, still used to the idea of lifetime employment, the news is devastating.
“I was speechless,” one of the Canon-employees said in an interview with Bloomberg. “I felt like I’d been given a death sentence.”
Unfortunately, he and his company are no exceptions. The unexpected fast dive of the Japanese economy the past few weeks, brings us a new list of companies with world-renowned names that lay off employees daily. Often many thousands at a time are shown the door.
For Japan this is a new experience. For the employees themselves is a true disaster. They don’t only loose their job. Many large Japanese companies also offer their employees housing. Almost always for next to nothing. Workers therefore don’t only loose their job, they suddenly loose the very roof above their head as well.
The shock hits even harder because so many Japanese have grown up with the idea of lifetime employment. This was sure enough always mainly for full-time employees at Japan’s largest companies, but the expectation of lifetime employment is nonetheless part and parcel of the mindset of many. For dozens of years, Japanese parents have been spending a fortune to send their kids to the very best schools they can possibly afford. Additionally, kids also spend every evening at cram schools. All of this for a job with Sony, Toyota, NEC, or one of the many other economic giants of Japan.
This enormous investment in time and money was usually worth it. Even after the bursting of the Japanese economic bubble in 1990, the famed Japanese lifetime employment managed to survive. Lifetime employment is clearly deeply ingrained in the Japanese psyche, management structure and economic system.
During the 90s, the Japanese economy however, underwent a silent revolution, the ghosts of which are now beginning to dance on the street. Since 1990, full-time employees who retired have been mostly replaced by temporary and short-term contract workers. There are now some 17 million of them, no less than 30% of all employees in Japan. They usually receive 40% less salary than regular employees and are also not covered by pension, health and unemployment insurance.
Japan now has two economic systems: one for workers with lifetime employment, and another one for people who are day laborers in all but name. Japanese companies have thereby cut the legs from under the table of the Japanese economic and social system.
“The dark side of the change in the labor market is becoming pretty clear,” says Makoto Yuasa, head of an organization that aids the poor in the earlier mentioned Bloomberg article. “The safety net has always been weak because the idea was that companies would take care of their workers. That’s no longer happening.”
Suddenly, a whole new social structure needs to be built in Japan. Companies no longer take the costs of a recession on their shoulders by keeping people employed who they no longer need. These costs will now have to be borne by society.
With a flood of unemployed and homeless threatening on the horizon, the Japanese government is desperately beginning to take measures. Last Friday, Prime Minister Aso announced a new stimulus package worth 23 trillion yen (260 billion dollars at today’s exchange rates). Almost half of this amount is meant to assist workers who have lost their job, for example by paying subsidies to companies who allow fired employees to continue living in company housing.
It very much looks like fighting bush fires. The underlying structural problems remain.