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OM in the News: Japan’s Inability to Fire Workers

May 14, 2013

Thjapan oecde Wall Street Journal (May 11-12, 2013) provides an interesting insight into Japan’s weakening international competitiveness that will make for a good class discussion when you cover Chapter 2, “Operations Strategy in a Global Environment.”  Japanese Prime Minister Shinzo Abe has quietly put aside plans to overhaul a rigid labor system that is blamed for many of the woes facing once-dominant Japanese corporations.

A government study estimated that businesses maintained 4.6 million jobs that were actually unnecessary. And with few mid-career job changes, there is little opportunity for entrepreneurship. Japan’s corporate start-up rate is the lowest among Organization for Economic Cooperation and Development (OECD) countries. “Japan should move toward a more flexible employment and wage system that is based more on ability rather than age to encourage productive workers to remain employed,” an OECD report states. “Labor mobility would help to foster start-ups,” says one Japanese professor. “New businesses won’t be created unless human resources are set free, but big corporations are trying to prevent their workers from being free.”

The workforce at Japan’s largest corporations is one of the most inflexible among developed nations, with a tradition of lifetime employment, a low participation rate among women and strict labor laws. These have combined to make it difficult for companies to shed excess workers, because of the legal issues it would raise and the cultural issues involved. As part of their role in society, corporations have been expected to help ensure full employment.

At least seven Japanese electronic manufacturers still produce flat-panel televisions, almost all at a loss. However, some industry executives have said privately that they don’t pull the plug on the unprofitable business because they would need to find other jobs within the company for those TV employees.

Discussion questions:

1. Compare US and Japanese labor laws.

2. What can Japan do to increase its manufacturing productivity?

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