management strategy and labour flexibility in japanese manufacturing enterprises

MANAGEMENT STRATEGY AND LABOUR FLEXlBlLlN IN JAPANESE MANUFACTURING ENTERPRISES

John Benson, Hiroshima City University

Since the 1970s Japanese labour relations and management practices have been scrutinised as Western firms searched for ways to improve their productivity and international competitiveness (Delbridge and Turnbull, 1992 56-57). For some commentators, Japanese economic success is due to the particular form of labour relations that has developed in Japan (Cole, 1971; Dore, 1990), while for others it is due to the work practices that are associated with Japanese manufacturing (McMillan, 1985; Womack, Jones and Roos, 1991). Pervading both explanations is the view that the Japanese labour market is flexible and adaptable.

While a number of studies have examined individual forms of labour flexibility in Japanese enterprises @pan Labour Bulletin;’ Ministry of Labour: Shimada, 1983; Freeman and Weitzman, 1987; Koshiro, 1983, 1986 and 1994; Taira and Levine, 1985), few studies have provided an integrated analysis of the various forms of labour flexibility. One exception is the research by Dore, Bounine-Cabale and Tapiola (1989) who examined the long-term processes of adaptability within the firm. Yet, as with most studies, this research was limited to employment adjustments in periods of economic difficulty. This article extends this research by examining the firms’ present and future use of labour flexibility in different market contexts. This will allow for a distinction to be drawn between opportunistic use of labour flexibility and a more strategic approach to the management of labour.

Within this framework two questions arise. First, is there a pattern to the use of the various forms of flexibility? In other words is labour flexibility a strategic management tool? Second, if flexibility is strategic does this mean that firms have adopted a core-peripheral model of employment? The article begins by discussing labour flexibility and managerial strategy. Following a description of the research methodology, it reports the results of a survey of manufacturing enterprises in the Kansai region of Japan3

LABOUR FLEXIBILITY AND MANAGERIAL STRATEGY

In industrialised nations, flexibility has been the key labour issue for the past decade (Blyton and Morris, 1992: 12). In Europe, Baglioni has suggested (1990), flexibility has become ’the employers’ new frontier’ in the management of labour. There is, however, little agreement on what is labour flexibility and whether it constitutes a managerial strategy. A variety of definitions have been proposed to class+ and measure labour flexibility (OECD, 1986; Brunhes, 1989; Clarke, 1992; Blyton and Morris, 1992). Underpinning these classifications are three distinct forms of flexibility (Harrison and Kelley, 1993). Functional flexibility is the ability of the enterprise to redefine employees’ work tasks to meet changing production needs or new work processes. Wage flexibility involves the linking of wages to individual and firm performance. Numerical flexibility is the ability of management to adjust labour inputs to product demand.

The growth in casual employment in the UK in the 1980s led Atkinson (1985,1987) to argue that firms were using a core-peripheral labour strategy. This strategy involves the firm using an internal labour market for the ’core’ jobs and the external labour market for all other

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MANAGEMENT STRATEGY AND LABOUR FLEXIBILITY IN JAPANESE MANUFACTURING ENTERPRISES

jobs. In this way the firm can adjust the 'peripheral' workforce to meet changes in product demand. The 'flexible firm' model has generated substantial debate. Pollert (1991) argued that the concept of flexibility is difficult to define and that it is not clear if Atkinson was describing a trend or prescribing a course of action. Empirical support for this model, both in the UK and elsewhere, has been limited (Abraham, 1990; Hakim, 1990; Hunter, McGregor, MacInnes and Sproull, 1993).

Are these findings applicable to Japanese firms? Japanese labour markets are seen as hghly flexible (Blyton and Morris, 1992; Oliver and Wilkinson, 1992) and some writers have argued that firms pursue a core-peripheral strategy.l Chalmers (1989: 239-240), for example, found clear divisions between core and peripheral workers and that these workers were segmented according to education, age, gender and skill. This peripheral workforce, she argued, was more likely to exist in small firms. In a similar vein, Clark (1979: 174) pointed out that lifetime employment is restricted to regular employees, and so most women and almost all part-time and temporary workers are excluded. This, Clark (1979: 47) argued, provides firms with flexibility as these workers can be 'dismissed when times are hard'.

Regular Japanese employees enjoy lifetime employment, age-based promotion and seniority wages. While these practices can be a source of rigidity (Dore, 1986) they encourage the incorporation of employees into the enterprise culture resulting in strong employee commitment. Moore (1987) contended that these practices are a 'highly rational and effective means for inducing worker identification with the enterprise and for creating a highly skilled and pliable core of employees adaptable to rapid technological and organisational change'.

Little research has been conducted to test whether these labour practices are a conscious strategy of Japanese management or simply ad hoc responses to prevailing social and economic circumstances. There are considerable differences in the literature on what is strategy and how it may be measured (Hyman, 1988). In this study strategy will mean the systematic and planned way management attempts to achieve the firms' corporate objectives. These strategies can be inferred from the current employment practices of the enterprise (Bray and Littler, 1988: 558), although this approach 'does not help in distinguishing, a priori, behaviour that is strategic from behaviour that is essentially opportunistic' (Hunter et a1.,1993: 385).

Strategic behaviour is characterised by the integration of labour practices with other corporate strategies and the firm's operating environment, including the firm's product markets. These contextual factors may constrain management so that they can only respond to 'crises' as they arise. Within these constraints managers will, nevertheless, be confronted with choices in the way they manage labour and work processes (Wood, 1980: 52-71). The extent to which the adopted practices incorporate these contextual factors is, therefore, an important indicator of strategic behaviour.

METHODOLOGY

Hypotheses The rationale for labour flexibility is that firms need to compete internationally and respond rapidly to changes in product markets and their business environment (Campbell, 1993). Changes in product markets requires firms to reconsider their product range, pricing policy and employment practices. The ease at which these changes can be accommodated depends, to a large extent, on labour flexibility. Yet the potential for flexibility varies substantially between

HUMAN RESOURCE MANAGEMENT JOURNAL VOL 6 NO 2 45

JOHN BENSON, HIROSHIMA CITY UNIVERSITY

firms. Most small firms are suppliers who specialise in a limited range of components and have a limited number of customers (Sako, 1992 53). These firms have few ways to improve company performance and the absence of unions has allowed employment conditions to become a key strategic tool. Large firms have more rigid labour practices and their capacity to make adjustments in the short term is limited (Dore, 1986). They can, however, transfer some of the impact of adjustment to a peripheral labour force and supplier firms (Clark, 1979: 47). lflabour ftexibility is a conscious managerial strategy (Hypothesis 1) then differences in flexibility should, therefore, be observed when firms are broken down by size and product demand.

If labour flexibility is strategic, does this mean that firms have adopted a core-peripheral model of employment? Little evidence exists that Western firms practice this strategy. Abraham (1990) found that US management action was not aimed at protecting regular staff, although seasonality and cyclicality of demand did affect the use of temporary workers. Similarly, Hunter and his colleagues (1993) found only a third of UK employers claimed their actions were guided by strategy and, of these, only one-third felt they were pursuing a core-peripheral approach. On the other hand, a number of writers (Clark, 1979; Moore, 1987; Chalmers, 1989), argued that the employment of contingent workers in Japanese firms is why such practices as ‘lifetime employment’ can be maintained. In larger firms this strategy is supplemented by the relationships with supplier and sub-contract firms. If Japanese firms practice a core-peripheral employment strategy (Hypothesis 2) then this should be evident in their proposed approach to future product market changes.

Sample The research was carried out in the manufacturing sector of the Kansai region of Japan. This region has a population of 21 million people and its gross domestic production of $US587 billion (1991 exchange rate) ranks it as a major economic region (Osaka Business, 1994 7). Manufacturing in Kansai employs nearly a quarter of the labour force, of which only 12 per cent work in enterprises larger than 300 employees (Ministry of International Trade and Industry, 1992). The major employer group is the Osaka Chamber of Commerce and Industry (OCCI). At the time of the research the OCCI had 38,256 members, 11,384 (30 per cent) of which were in the manufacturing sector. Of this group, 971 (9 per cent) employed 100 or more employees, all of which were included in the study.

Questionnaire and interviews Questionnaires were mailed out in October 1991 to the chief executives of the selected companies. The questionnaire covered a number of areas including product markets, organisational change and employment practices. By the end of December, 253 usable replies were received which represented a response rate of 26 per cent. No significant difference existed between participating and non-participating enterprises on employment size (chi-squared = 2.25, d.f = 1, p > .lo). In the period November to December 1992, interviews were conducted with senior managers of 11 of the companies that had responded to the original questionnaire.

Statistical analysis In this study, large firms are those that employ 300 or more employees while small firms are those that employ less than this figure. This criteria is that adopted by Government agencies in Japan, although in this study no small firm employed less than 100 employees. Where the



flexibility variable was nominal, a &-squared test was performed. If the variable was measured on an interval scale, a t-test was conducted. All data analysis relied on the relevant procedures in SAS (1988).

Respondents The majority of large firms had been operating for over 50 years and so had well-established labour practices. In contrast, small firms had been operating for a significantly shorter time and had a significantly lower number of workplaces making up the enterprise. Most firms had a stable product market, although a little under one-third of firms had an expanding market for their major product. Large firms had a significantly higher percentage of skilled employees, although no other aspect of their staffing profile was statistically different to that of small firms. Large firms were also significantly more likely to be unionised and unions had achieved higher levels of membership than in the small firms. In addition, labour costs were a sigruficantly lower proportion of total costs than was the case in small firms. This signifies the advanced technology found in these firms, the significantly higher use of shiftwork and the ability to spread fixed costs over a larger number of staff.

FLEXIBLE WORK PRACTICES This section examines functional, wage and numerical flexibility. The analysis will be broken down by firm size and product demand. If variations in employment practices are found, then this suggests a strategic element to labour flexibility.

Functional flexibility In Japanese firms the concepts of job and job ownership do not exist. Workers are recruited from schools and universities as general company employees rather than as specialists in a particular field (Clark, 1979: 222). Tasks are assigned to work teams and employees are expected to perform a wide range of job functions and accept frequent assignment changes (Lincoln, Hanada and McBride, 1986). As Abo (1994: 38) reported workers can be moved from job to job without incurring changes in their wages as there is little relationship between a particular job and a given rate. Therefore, usual measures of functional flexibility, such as the range of tasks workers perform, are not useful in distinguishing between the strategies of Japanese firms.

An alternative measure of functional flexibility is the participation of employees in a range of management sponsored activities (Mathews, 1989; Harley, 1994). This is an appropriate measure for Japanese firms as their employment system facilitates workers’ multiple skill formation and teamwork. This, Abo (1994: 39) asserted, promotes a ‘sense of involvement among workers’ and encourages them ’to contribute to ongoing job improvement, problem solving and increased productivity’. It also means that changes to the content and nature of jobs will be more readily accepted by employees (Kono, 1984: 305; Koike, 1988: 268-269).

Two-thirds of all enterprises surveyed operated quality circles (table 1). In these cases managers reported that quality circles enhanced productivity (97 per cent), improved communications with employees (91 per cent) and made it easier to introduce change (57 per cent). The flexibility generated can, nevertheless, be limited. Interviews with managers indicated that some firms had limited quality circles to the production function, while others had relatively inactive circles or had reduced them to little more than suggestion schemes. Firms



facing an expanding market for their major product were more likely to have introduced quality circles and this was statistically significant for small firms (p<.05).

TABLE 1: Functional flexibility (percen tuge ofenterprises) All firms Small firms Large firms

(100-299) (300+) Variable N=253 N=178 N=75 Quality circles (“h) 65.5 64.1 68.6 Suggestion scheme (“A) * 80.3 76.7 88.6 Regular meetings (%) ** 60.8 69.0 41.8

* pc.05 ** p<.Ol.

Four out of five firms had formal suggestion schemes and this was particularly the case for large firms. This finding was expected as the size and complexity of these firms make it difficult to sustain other, more informal, means of employee input. Managers indicated that suggestions can range from simple cost saving ideas to the restructuring of work processes. As with quality circles, if the suggestion resulted in revised work tasks it would be more likely to be accepted as the employees had initiated the process. Interviews suggested that not all ideas are spontaneous; management can also initiate change and ask workers to suggest ways of implementation.

Regular management/employee meetings were held in 61 per cent of all firms, although they were significantly more likely to occur in small enterprises. This resultis partly explained by size and organisational complexity and partly by large firms using alternative methods, such as suggestion schemes, to involve workers. These meetings allow for a range of views to be expressed and for a variety of work issues to be discussed. For example, interview evidence concerning job allocation indicated that this was a management function with little union involvement. In most cases this issue would, however, be discussed with workers and so these meetings played a key role in achieving functional flexibility.

Wage flexibility Wages in Japanese firms consist of a basic monthly wage, bonuses and a variety of allowances. In unionised firms most of these payments are subject to the annual wage negotiations (‘Shunto’) held between March and April each year. These negotiations are usually co-ordinated by industry federations, often with similar claims being submitted and similar outcomes being achieved (IMF-JC, 1991). Macroeconomic factors play a key role in determining wage increases as, before enterprise negotiations, a national consensus emerges as to the increase the economy can afford (Dore, 1986: 104). Non-union firms have more flexibility in determining wages but take notice of bargaining trends and what other employers are paying. Advancement through the wage range primarily relies on years of service (Kuwahara, 1993: 225). More competent employees gain promotion early, but even the least competent will gain regular increases in their basic rate besides the union won increases. As Abegglen and Stalk (1985: 203) maintained ‘Japan remains, in important respects, an age-graded society and the concept of compensation and position being determined by age is deemed appropriate’.

Half the enterprises surveyed had a component of the monthly wage, related to performance (table 2). The performance component did not represent much of the monthly wage, with the



average across enterprises being 13 per cent. Moreover, these payments applied to less than half (44 per cent) of all non-managerial employees. Interviews with company management indicated that some form of individual appraisal formed the basis to these schemes. Yet, in many companies the resultant payments took the form of accelerated promotion rather than a variable component of base salary and so flexibility was substantially reduced. As one senior manager responded, ‘we have performance based pay, but education and age are still the predominant factors in the firms’ payment system’.

TABLE 2: Wageflexibility

Variable Performance related pay (%) Annual Bonus (x)

(number of months wages) ** Allowances (%) - family -housing * -travel

All firms Small firms (100-299)

N=253 N=l78 50.6 48.5

5.1 4.9

96.4 96.5 79.8 76.3 98.8 98.9

Large firms (300+) N=75 55.6

5.4

96.0 87.8 98.7

* pc.05 ** p<.o1.

The typical enterprise paid more than five months salary as twice-yearly bonuses. These bonuses have been seen as a form of deferred payments (Abegglen and Stalk, 1985: 196) and as a means to reward employees (Clark, 1979: 139). Enterprise management indicated the potential for the latter is limited. While bonus negotiations occur at the end of the financial year, the processes are similar to ’Shunto’ in that they are often co-ordinated at the industry level with macroeconomic factors being important. As Dore (1986: 103) commented, ‘bonuses are sticky downwards, especially in the big firms with unions, for these payments are fully incorporated into workers’ income expectations; they are not just a marginal extra’. Koshiro’s (1986) econometric analysis of bonus elasticity in large firms confirms this claim.

Large firms paid significantly higher bonuses than small firms. For small firms, bonuses were significantly related to product demand (p<.05). The size of the bonus was 4.3 months for small firms in a contracting market and 5.1 months for similar firms in an expanding product market. Clearly the absence of unions in these firms and the relative high labour costs makes this strategy feasible. On the other hand, the overall effects may be limited. For example, one non-union company visited in 1992 had reduced its bonuses by 10 per cent (5 months to 4.5 months) from the previous years‘ level. At the same time the base monthly salary was increased by 4.5 per cent and so bonuses fell in money terms by only 6 per cent and total wages rose overall by 2 per cent.

A further component of Japanese wages is the payment of allowances. Family and housing allowances can represent up to 20 per cent of the monthly wage (IMF-JC, 1991), while the travel allowance normally covers the cost of transport to and from work. Most respondents paid the family and travel allowances and four-fifths of firms paid a housing allowance. This last allowance was significantly more likely to be paid by the large enterprises. The ability of firms to adjust these allowances is severely limited as employees and unions have built these



payments into their wage expectations. This was demonstrated by the finding that for both large and small companies the state of the product market had no effect on the payment of these allowances.

Numerical flexibility Numerical flexibility can be achieved in a variety of ways including casual employment, adjusting the length and spread of working hours, and manipulating annual leave. Casual work has traditionally been used by Western firms as a way of meeting seasonal and cyclical peaks in employment. This form of work is common in industries such as hospitality and retail trade (Benson and Worland, 1992; Deery and Mahony, 1994). As product markets have become more volatile, manufacturing enterprises have turned to this form of employment. In the enterprises surveyed nearly 14 per cent of employees were employed as part-time and temporary workers. As indicated in table 3, casual employment was significantly higher in small firms.

TABLE 3: Numericalflexibility

Variable Casual employees ( x ) * Working hours - length (x) - spread ( %> 5 days) ** - overtime ( x )

- entitlement ( x ) ** - percentage taken ( x )

Annual leave

* p<.10 ** p<.Ol.

All firms

N=253

13.8

41.1 43.6 4.4

18.9 65.4

Small firms

N=178 14.8

(100-299)

41.6 51.4

4.3

17.9 68.1

Large firms (300+) N=75 11.2

40.2 24.7 4.6

21.3 59.0

The level of casual employment declined to 4.4 per cent for large firms facing a contracting product market (p<.05). No significant variation was detected for small firms. In times of severe crisis, casual workers may be the first to be laid off, although the managers interviewed suggested other approaches would be used first. These included cutting back on recruitment, reducing overtime, ’voluntary’ retirement, natural attrition, sending employees on training programmes, and relocating employees to subsidiaries. Three of the case study companies had, however, reduced the number of part-time or temporary employees due to declining sales.

The average contractual hours of work was 41 hours per week. Half the firms worked greater than 43 hours per week and in 44 per cent of firms, employees were working more than five days per week. Small firms were significantly more likely to work greater than five days, although this was unrelated to the firms’ product market. The average paid overtime worked was over 4 hours per week. There was also an extra four hours per week that did not attract any payment. This ’service overtime’, coupled with the low penalty rate for overtime (25 per cent), provides flexibility for Japanese enterprises as it is substantially cheaper than employing new staff. Large firms, in a contracting product market were more likely to reduce hours of work (pc.05) and overtime (p<.Ol), including service overtime (p<.05).



Annual leave entitlements were significantly higher in large enterprises, although their employees were less likely to take this leave. This suggests leave entitlements are ameliorated by the prevailing work structure and culture. Managements indicated that work structures, such as teams, made the taking of annual leave more difficult. Leave entitlements and the percentage of leave taken was unaffected by the firms' product market.

Labour flexibility as a managerial strategy The foregoing analysis shows that labour flexibility in Japanese firms is uneven, both in form and extent. Functional flexibility was measured by practices that the literature suggested are manifestations of this form of flexibility. Just under three-fifths of enterprises had implemented at least two of the three schemes examined. Limited wage flexibility had been introduced with bonuses and performance-based payments, but in the latter case this was often achieved by promotion and so a great deal of the flexibility was lost. Moreover, the variety of allowances act to counter any effects that can be achieved through the linking of part of the base wage to enterprise performance. Numerical flexibility was common in Japanese enterprises and was typically accomplished by the employment of casual workers and adjusting weekly working hours.

Do these differences in labour practices demonstrate a conscious managerial strategy? In part, they reflect the different contexts of small and large firms. Labour costs for small firms represent a large proportion of their operating costs. As these firms are not normally restricted by unions they can use labour practices as a major strategy. The need for flexibility by these firms is often exacerbated by their dependent relationship with large enterprises. Large firms are more complex, have established work practices and have a strong union presence. Given the impact of unions on firm performance (Brunello, 1992; Benson, 1994), large firms tended to pursue policies of capital investment and maximising this investment by shift work rather than labour cost reduction.

Part of the variation was also explained by differences in product demand. Quality circles were more prevalent in small firms facing an expanding product. This suggests that managements in these firms use employees to develop ways to accommodate t h s increased demand. Bonuses were reduced in response to a declining product market although, again, this finding only applied to small firms. That no change was evident in large firms illustrates the difficulty in reducing wages in these firms. The state of the firm's product market had most influence on numerical flexibility. This was particularly the case for large firms that had significantly reduced the number of casual employees, working hours and overtime when faced with a declining product market. In summary, given the relationship of flexibility to firm size and the state of the product market, these practices appear to form part of a flexible labour strategy. Hypothesis 1 has thus been established.

DO JAPANESE FIRMS PURSUE A CORE-PERIPHERAL STRATEGY?

Is the use of a flexible labour flexibility part of a broader strategy to protect a core of highly skilled and committed workers? One approach to answering this question would be to ask firms if the forms of flexibility have been guided by strategy and, if so, does the strategy divide employees into core and peripheral workers (Hunter et a1.,1993)? Yet, it is doubtful that most firms could



conceptualise or classify their strategies in such terms. The approach adopted in this study was, therefore, to ask managers what their strategies would be if the demand for their major pmduct changed.

Increasing product demand The most likely response by firms, to an increase in the demand for their major product, would be to introduce new technology (table 4). Interviews with management indicated that major capital investment decisions are made by the firm's directors, often after a lengthy process of employee involvement and union consultation. A strategy of introducing new technology, therefore, is primarily a long-term strategy that occurs only after the increased product demand is assessed as reasonably permanent.

TABLE 4: Management strategies: increased demand for major product f% of enterprises) All firms Small firms Large firms

(100-299) (300+) Strategy N=253 N=178 N=75 Increase regular employees 54.6 53.8 56.5 increase temporary employees* 56.2 61.0 45.2 Increase overtime 52.5 54.2 48.3 Increase price of product 21.1 18.8 26.8 Increase employees' wages 43.5 43.5 43.6 Introduce new technology 92.4 92.0 93.6 Increase sub-contractors 76.3 78.2 71.7

* pc.05.

In the short-term, a number of strategies would be used to accommodate the increased product demand. The major strategy, in this category, would be to sub-contract work out (76 per cent). Other strategies mentioned by a majority of firms were increasing temporary employees and overtime. Small firms would be significantly more likely to increase the number of temporary employees. This reflects the uncertain operating environment facing these firms. Increasing the number of regular employees was also mentioned by a majority of firms but, as with new technology, this would occur only if the increased demand is considered permanent and appropriate labour available. Increasing wages in an endeavour to increase productivity and increasing the price of the product to dampen demand, were seen as alternatives by only a minority of managers surveyed.

Declining product market The majority of firms facing a declining product market would reduce the number of sub- contractors and their productive capaaty (table 5). Two-thirds of firms would also reduce hours of work, although this would not necessarily result in lower wages as it may involve reducing the level of 'service overtime'. While a majority of firms would reduce the number of temporary employees this was significantly more likely with small firms. More than a quarter of large firms would attempt to stimulate demand by reducing the price of the product. This strategy has little relevance for many small firms as they are often restricted by contractual arrangements with large firms. Reducing the number of regular employees would be considered by less than one in six employers. This shows a commitment to maintaining core employment.



TABLE 5: Management strategies: decreased demand for major product (% ofenterprises) All firms Small firms Large firms

(100-299) (30W Strategy N=253 N=178 N=75 Decrease regular employees 15.7 15.4 16.4 Decrease temporary employees* 66.3 71.0 56.0 Decrease hours worked 67.6 68.2 66.1 Reduce price of product* 18.7 15.2 27.3

Reduce productive capacity 62.3 61 .O 65.1 Decrease sub-contractors 76.4 78.9 70.5

* pc.05.

Reduce employee’s wages 3.7 3.0 5.5

Labour flexibility as a core-peripheral strategy A major adjustment strategy for three-quarters of Japanese firms is the use of sub-contractors to adjust output to increasing or decreasing product demand. The same applies to the use of temporary employees, with one important difference: small firms would be significantly more likely to adopt such practices. Adjustment to the level of regular employees was not a major strategy. This illustrates a strategy of protecting core employees, although it may also be influenced by the shortage of skilled labour in Japan (Kuwahara, 1993: 234). Hypothesis 2 has thus been established.

Core workers do not, however, remain unaffected by these strategies. Varying hours worked, by either changing regular hours or adjusting overtime, was a strategy that would be adopted by a majority of firms. In most cases, however, wages for these workers would be only marginally affected. For example, when overtime hours are reduced this may result in n reduction in ‘service’ overtime. Similarly, increasing hours of work may result in only small increases in wages as much of the increases may be absorbed into this form of overtime.

CONCLUSION

This article explored labour flexibility in Japanese manufacturing enterprises. Two questions were considered: is flexibility a labour strategy and have Japanese firms adopted a core- peripheral model of employment. Most firms had achieved functional flexibility by instituting mechanisms that promote employee involvement in making decisions about their work and work processes. Wage structures and payment systems presented a major rigidity for all firms, and particularly the large firms. Small firms had more numerical flexibility, but the large firms appeared to make more use of this flexibility when faced with a declining product market. The use of contract and temporary workers would be a major strategy for all enterprises facing fluctuations in the demand for their major product, although this was substantially more likely with small firms.

Flexible labour practices were more prevalent in small firms. This can be explained, in part, by the contextual differences between small and large enterprises. Large firms were significantly older and had a higher number of individual workplaces. Hence custom and practice, standardised policies and the necessity for bureaucratic control become major hurdles for increased labour flexibility. The presence of unions in large firms also restricts the types of employment practices that can be implemented. In addition, labour flexibility is not as important



to large firms due to their lower percentage of labour costs and their ability to reduce costs by capital investment. For these reasons, apart from some limited adjustments to staffing levels, large firms will achieve improved productivity by more efficient capital equipment and organisational change.

The research suggests that small Japanese firms tend to adopt short-term or defensive forms of flexibility (Boyer, 1988; Rojot, 1989). In other words, their labour strategies are aimed at maximising the returns on labour and reducing labour costs by wage and numerical flexibility. Given the significance of these firms to the Japanese manufacturing sector (MITI, 1992), this is clearly an important factor underpinning the Japanese ‘economic miracle’. On the other hand, large firms see the need to maintain a highly skilled workforce that is adaptable rather than dispensable. Small firms have similar objectives, but contractual relationships and precarious economic conditions dictate they develop a workforce that can be readily dismissed. While a number of rigidities exist within the internal enterprise labour market, it is concluded that labour flexibility is a strategic objective of Japanese management. Moreover, the use of casual and contract workers is consistent with a core-peripheral model of employment.

NOTES

1. The Japan Labor Bulletin (JLB) has, since the early 1970s, published articles and summaries of official reports on various aspects of labour flexibility. 2. The Ministry of Labour (MOL) conducts regular labour market surveys. Since the oil crisis of 1973-74 these surveys have included details on employment adjustment methods (Koike, 1988: 165-167). These surveys have tended to focus on periods of recession and declining product markets and industries. The most recent survey is the 1994 Industry Labor Situation Survey which records employment adjustment measures during the recent recession (JLB, Vol. 34, no.

3. This study specifically excludes the role of the state in influencing firms’ employment strategies. This does not deny the influence of government policy, but as Morishima (1995: 142- 143) argued their involvement is not directly related to firms’ human resource management. The Japanese government has implemented schemes to assist firms with employment adjustment (subsidies for temporary layoffs, training and retraining, outposting) but as Dore et al. (1989: 37) found, the take-up rate of such schemes was limited. 4. Japanese scholars have for many years referred to ’inside’ and ‘outside’ company employees to distinguish between contract workers and regular company employees. It is not clear, from tlus literature, as to how temporary and part-time employees are classified (Koike, 1983: 115).

6,1995: 2-3).

ACKNOWLEDGMENTS

I am indebted to the Japanese managers who participated in the study and the Osaka Chamber of Commerce and Industry. I would like to acknowledge the generous support of the Japan Foundation who funded this study. I thank the anonymous referees of the Journal for their thoughtful comments and criticisms.



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