Lifetime-Job Policy Is Under Strain in Japan

Corporate Japan’s unwritten commitment to providing lifetime employment is being put to the test as the weak economy exposes cracks in the country’s “economic miracle.”

Economists said companies desperately trying to slash overhead had exhausted other cost-cutting options and were now on the brink of laying off staff long protected from dips in the economy.

“As the recession continues, there are signs that Japanese corporations may be nearing the point of deeper labor cuts,” said Soichi Enkyo, senior economist at Bank of Tokyo.

Layoffs could upset relatively harmonious relations between employer and employee. Employees laid off now are likely to demand faster, higher raises in the future and deprive companies of a stable pool of labor, economists said.

Bosses, wanting to maintain a happy work force and mindful of a longer-term labor shortage, have preferred to swallow the hefty labor costs that are choking profits.

Indeed, although the statistics are open to some question, Japanese companies have shown a grim determination to keep long-term employees on the books during this slump. Unemployment stands at 2.2%, compared to 7.5% in the United States.

But economists say Japan’s unemployment rate could hit 3% next year, a level not seen since 1988.

“The time has come where the social contract is under serious strain,” said Jesper Koll, economist at S. G. Warburg Securities. “The pain is getting so intense that companies have no choice but to cut jobs.”

At the root of corporate Japan’s agony is the speed of labor-cost growth relative to revenue growth.

Chiharu Shima, an economist at UBS Phillips & Drew International, says labor costs have been growing at 7%, but corporate profits plunged a record 30% in the first half of this fiscal year.