ABSTRACT
Nowhere are Japan’s barriers to entry and exit more profound than in the labor market, where too many workers are trapped in moribund firms and industries. Lifetime employment originated in the 1920s as a company response to labor shortages. It became solidified during the mobilization for World War II, and then again during a period of labor unrest that followed World War II. Several factors were working against change in the labor system. No one entity—worker or union or firm—could effect change on its own, unless everyone else changed at the same time. A system regarded as ensuring labor security has, in fact, done the opposite. By 1999 it had become conventional wisdom that excessive personnel costs—too many workers with wages that were too high—were the primary culprit in falling profits. Downsizing may be necessary but it is a far cry from true labor mobility.
