Introduction
I remember that I saw the scenery of labor disputes on TV when I was still a child. But now in Japan, we have no fierce conflict while there are many in Korea and some other countries. Where is this difference from?
We can suppose two possibilities. One is that two groups of countries are in the different stages of historical development of economy. From this view about the situation, Korea will reach the same stage as Japan, where labor unions and companies have built good relationship.
The other possibility is that both groups of countries belong to the utterly different framework of labor-management coordination. From this view, we can say that because each group has different coordinating system, the situation is also different.
Which view is right? I think both are right in a different meaning. Japan chose a system of coordination in a stage of economic history and it got this
The Theory of Labor Dispute and the Policy Framework for Labor-Management
Corporation: A Case Study of Japan
Yoshihiro Yamazaki
＊＊Faculty of Economics, Fukuoka University, Fukuoka, Japan
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harmonious style of labor-management relationship. In the other words, if Japan had not made such a choice, we would still have the same situation as Korea now.
I try to show what the choice was and when Japan made it. I will also make it clear that the governments, especially the local ones, had played a certain role in building such harmonious a relationship between labor and management in Japan.
1. A Theory of Labor Dispute as an Analytical Framework
In the history of economics, we can find only few theory of labor dispute. Of course, Marxian economists, so to speak, studies labor economics and labor policy in Japan, too. They proposed strategic policies to achieve a social reconstruction standing by labor side. But I think they were too ideological to follow as political guidelines.
Neo-classical economists, who have been called modern economists in Japan, also built their own labor economics. But their theories are normally based on well-balanced theoretical framework. In a meaning, every solution comes from the balance of supply and demand. Workers will accept the wage that is equal to the marginal disutility of labor. Employers will accept the wage paid that corresponds to the marginal productivity of labor. There will be no conflict here.
J. M. Keynes proposed a possibility of the existence of involuntary unemployment in his masterpiece, The General Theory of Employment, Interest and Money in 1936. Keynes denied the theoretical proposition of neo-classics on workers’ side. He believed that workers did not consider the marginal disutility of labor at all. They just tried to keep the present level of wage. Because of this behavior of workers’, the wage was kept relatively high and involuntary unemployment would occur. But in Keynes’s discourse, it was not explained how
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the present level of wage is determined.
Though Keynes’s theory left the question unexplained, another economist made a model that explained the determination of wage through labor dispute. It was J.
R. Hicks who built a neo-classical theory of labor dispute in his book,The Theory of Wages in 1932. Hicks also thought that a balance would determine the wage level but that the balance was not purely an economic one.1
Hicks introduced two curves into his model. One is employer’s concession schedule and the other is labor union’s resistance schedule. These curves were drawn in the plain where the horizontal axis was expected length of strike and the vertical axis was wage rate. The present wage rate would be determined at the intersection of the two curves.
If employers are required higher wage rate, their rejection will be stronger. Of course, the company must suffer from workers’ strike. But the employers’ ability of endurance will be determined according to the wage rate that workers require to the employers. Thus the employer’s concession curve will rise with the expected length of strike. The higher the required level of wage goes up, the longer the employers endure the strike.
On the other hand, workers require higher wage any time they have a chance.
But labor dispute will give them damage, too. While they are on strike, they will not have any income. So they do not also want to go on strike so long as their employers accept their request at a relatively high level of wage rate. But when the employers’ attitude is not so friendly, the strike period will be longer. This is why the labor union’s resistance curve declines with the length of strike.
1 A Japanese economist, Yasuma Takada published a unique book, A Treatise on Power in 1940. He explained the determination of wage level from the viewpoint of power balance between labor and management in the book.
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Wage Rate
Expected Length of Strike
R P
Q
O
Like the figure below, the two curves will have an intersection as the point P.
The wage level OQ is the presupposed rate of this negotiation. This rate may or may not be the same as the present rate. In this case, QR is the increment of wage rate.
From Hicks’s model, we can derive some suggestion to ease conflicts between labor and management. First of all, Hicks wrote on the side of labor unions as follows ;
About the form of the Union’s resistance curve there is not much that has to be said. It has already been suggested that in many cases the resistance curve may be horizontal for an appreciable portion of its length ; for example, in times of bad trade, a union may resist a reduction in wages with its all might, but suggestion for an advance, if they are made at all, are not meant seriously. When the dispute arises originally out of the men’s claim for an advance, a horizontal stretch is indeed less likely ; but even in the case, some new level may easily invoke a special attachment − because it has been granted elsewhere, and is therefore considered fair, or because it has been
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paid at some earlier period, or for some similar reason. If now the employer’s concession curve cuts the resistance curve on the horizontal part, the union will generally succeed in maintaining its claim ; but if it cuts it at a lower point, compromise will be necessary, and it is over such compromises that misunderstandings and strikes most easily arise.2
As Hicks said here, the employer must compromise the union when the resistance of union is very fierce. And it is very important that the strength of union’s resistance will be estimated from the situation surrounding the negotiation.
Hicks wrote about the employers’ side as follows ;
We may now turn to examine the employer’s concession curve. The wage an employer will pay rather than submit to a strike of given length will depend on the relative costs of concession and resistance ; anything which raises the cost of a strike to him will raise the wage he prepared to pay, anything which raises the cost of paying a given wage will lower the wage obtainable. Once the duration is given, the most important conditions which determine the cost of a strike are : (1) the degree to which the union can make the strike effective in causing a stoppage of the employer’s business ; (2) the direct costs of the stoppage − the profits unearned and the fixed charges uncovered ; (3) the indirect losses through breaking of contracts and disappointment of customers. Anything which increases these things increases the wage which Trade Union action can secure. The most important factors which govern the cost of concession are : (1) the length of time the settlement is expected to last ; (2) the extent to which a given rise in
2 Hicks, J. R.,The Theory of Wages, 2nded. 1963, Macmillan, p.153.
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wages will diminish profits. Anything which increases these will diminish the wage the employer is prepared to offer.3
The employers can finish the negotiation in a better condition for them by relaxing the costs that Hicks listed above. But above all, they can avoid the conflict totally if they know the point of intersection at the beginning and propose the appropriate wage rate to their labor unions. Japanese automakers are supposed to settle the negotiation between labor and management through such a style of method.
2. How did Toyota Company build the corporation between Labor and Management?
Toyota style of labor governance is very famous as a harmonious way to treat labor-management relationship. As I wrote earlier, we have to emphasize the fact that this very system was chosen by both the company and the union at a point of time historically. This fact means that Japan could have also another choice then and that Japanese system of labor-management coordination can be chosen by other countries and be transplanted there. We investigate how this system was formed in Toyota Company.
1) The Inception of Toyota Labor Union
It was in 1956 when a labor union was made in Toyota. US occupant army reconstructed Japanese economy from the viewpoint of industrious democracy.
Many unions were made then and Toyota Union was one of them.
3 Ibid., pp.154‐5.
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Almost all unions had a political character those days but Toyota’s one was different from them. It denied the leftist belief clearly. They declared to pursue to be “a true union for workers.” The first chairman, Toshio Ebata said, “We will prosper with Toyota Company and will refrain from one-way requests.” The company also treated this union favorably. More members participated in the company’s steering committee from the union than the management.
Toyota Company had a paternalistic care for employees from the beginning, too.
This is one of the reasons for Toyota style of relationship between labor and management. But Hiro-omi Hayashida, one of the union leaders, said, “Almost all of Toyota employee had been farmers. Farmers knew what to work was. They knew well that without working, they could not live.” Farmers’ mentality may also be a reason.
2) The Labor Dispute
This good tradition, however, disrupted soon. A huge labor dispute happened in the early 1950s. Because of a depression, the company announced a 10 ％- wage cut but it promised not firing employees in 1949. But next year, the company announced to fire some employees. Though the union tried to accept the proposition at first, many workers changed their attitude into the hostile one.
The main reason was lack of communication between workers and management.
Collective bargaining and strikes were repeated again and again. In this process, the influence of Japanese Communist Party crept into the union. Needless to say the management, the union side worried about this invasion. Finally the board of directors resigned and the union accepted the dismissal of 1,500 employees.
After all, Toyota Union had kept their discipline that employee would prosper with the company. They avoided their losing everything by pursuing political
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slogans. And under new agreement between both side, the union came to have nothing to do with the management of company directly. Though strikes happened occasionally for a while, the board of the union did not take it seriously yet.
3) The Establishment of the Union’s Policy Line
In 1954, Hiro-omi Hayashida made a speech for the union members. He said in this speech, “I will propose here what we should do for Toyota Company. We have to see subsistence of things. We will make efforts to solve the problem of production harder than to raise the wage rate. I don’t think workers always should protect against rationalizations. It is natural that the management pursues profits through rationalization. We, workers, mainly pursue the improvement of labor conditions.” Behind such a stance of the union, there was the boom from Korean War.
Of course, some members of the union resisted this radical change of their policy line. But the board of the union kept establishing the new line and published the new platform. The platform had 4 clauses. In the first clause, they said that they should pursue the preservation and improvement of labor conditions. In the second, they told that they would steer the union democratically and would never accept any influence from the outside. In the third, they declared that there was no stability of workers’ lives without the development of the company. Both were the two wheels of the company. Lastly, they promised that they thought much of friendship among unions.
This platform developed into the declaration of labor and management in 1962.
The purpose of this declaration was to confirm the necessity of coordination between labor and management. The provision said, “The management is willing
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to maintain and improve the labor conditions from the viewpoint that the necessary factor of the company’s prosperity is our employees. The union will coordinate with the company to pursue the company’s prosperity under the understanding of necessity of productivity.” This statement showed the essence of Toyota system of coordination between labor and management.
4) Expansion of the Union
From the 1960s to 1970s, a wave of motorization washed Japan. Toyota Company grew bigger and bigger. Following this development, the union involved many types of people. Though all the workers no longer had farmers’
mentality yet, the union injected the paternalistic mind into its members. In this process, Toyota Union advanced PT (Personal Touch) movement. They decided monthly slogans and tried to grow friendly atmosphere like a family inside workshops. The slogans were like these ; Accept new member kindly! Know Toyota, Teach Toyota! Get a good taste! Keep rules! Connect your workshop and your hometown! Get a good custom! Be a good teacher for new comers!
Know and teach your workshop! Introduce Toyota to your hometown! Learn a fighting spirit from your seniors! Be free of traffic accidents!
At the same period of time, the union recommended its members to make their vision of lives. In the process of this, employees of Toyota came to combine their personal lives with the prosperity of the company. The union also took care of the wage gap between full-time workers and part-time ones. By doing so, it kept its members’ confidence and loyalty to the union.
We followed the history of Toyota system of coordination between labor and management. Can we abstract the key elements of the system now? The table
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below shows the main aspects of Toyota system of coordination.
Concept Mutual reliance between labor and management.
Achieve each different purpose through the corporation.
Attitude
Represent the main interests of workers’ majority.
Belief on equality of labor and management Mutual respects of each standpoint.
Method High motivation of employees.
Continual management of the union to improve the motivation further.
Next we have to check if some public policy had influence this formation of Toyota-like system in Japan.
3. Japanese Features of Public Labor Policy
For this chapter, we have the purpose of showing the appropriate labor policy or political framework to build a good relationship between labor and management.
To achieve this purpose, we investigate Japanese cases in comparison with Korea.
We will check the legal and social framework, the character of labor unions and the importance of local labor policy respectively.
1) The Legal and Social Framework
We will look at some legal framework around dismissal to consider the social background of relationship between labor and management. In America, people follow the principle of “employment at will.” Employers can lay off their employees in any time and for any reason. Japanese legal system is similar to American one but its actual operations are considerably different in Japan. Judicial precedents prohibit employers from abuse of dismissal right. They tell that the dismissal direction will be invalid unless the order is admitted by social
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commonsense.
American people believe that the employment is an even contract between a company and employees. So government or any other organization should not intervene in such a private contract. In contrast to it, Japanese people have believed that dismissals are bad actions. Japanese government also has supported companies to avoid the dismissals. It gives subsidies for employment adjustment to them during depressions. The companies pay the money to employees as a part of their salaries.
Korean labor law also prohibits dismissal unless the employer has any “proper reason.” In this meaning, Korean social commonsense seems to akin to Japanese one and it can be said that the restraint to dismissal is even stronger in Korea than in Japan in the legal sense.
In conclusion, American society follows free market principle even in labor market while Korean government adopts a relatively regulating policy in labor affair. Japan takes a moderate stand between the two. This stance of Japan gives free hands to both labor and management to some extent, and by doing so, Japanese government or society makes stable the relationship between labor and management.
2) The Character of Labor Unions
In America, there exists a very strong power of labor unions. I mean AFL-CIO here. But this headquarter of labor unions does not touch collective bargaining directly at all. It is several national unions that are in charge of collective bargaining with each company. The union branches in each company complement such national unions’ bargaining. In other words, these national unions keep very strong influence on each unit of unions in a company.
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Japanese case is very different from this. Enterprise unions are main players in Japanese collective bargaining. Almost all enterprise unions are relatively independent of national unions. Even in Japan, industry unions had strong influence on collective bargaining from the 1950s to early 1980s.4 But now it is not the case.
In Korea, enterprise unions are outstanding just like Japan. So the situation may be supposed to be similar to Japan. But there is an important difference. In Japan, enterprise unions are more powerful than national unions but national unions do keep certain influence still now. This less strict network may coordinate the behaviors of each enterprise union and give an order in collective bargaining in Japan.
On the contrary, there are no strong industry unions or no national centers of unions in Korea. Because there is no coordinator in each collective bargaining in Korea, some units of unions may take extreme action in the bargaining.
3) The Importance of Local Labor Policy
While the behavior of unions is decentralized more than in Japan, labor polices seems to be centralized in Korea. In both countries, the governments form labor committees as independent administrative agencies. Labor committees arbitrate labor conflicts from a neutral position. In Korea, however, all of local committees are controlled by the labor department of the central government. And intervention from other administrative offices is allowed in the arbitrations.
4 In these periods of time, the main bargaining was held in early spring in Japan regularly. It was the same season each year and people called it “Shun-to”
(Spring Fight in Japanese). A-few-day-long strikes were, so to speak, annual events for Japanese people in those days.
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Of course, such an intervention was forbidden in Japan and each local committee can make a decision independently. There is a central committee of labor in Japan, too.5 But Japanese government strengthens the independence of local committees even these days. Though they called them “local committees”
till 2004, they renamed them “prefectural committees” now
We also can see another aspect of the localization of labor policies in Japan.
Japanese Agency of Welfare and Labor announces the Plan of Local Labor Policy each year. This year’s one is as follows ;
A. Problems
(1) Promotion of Employment and Career Development for Activation of Local Economy and Strengthening of Economic Growth
(2) Certification of Safety and Relief for Workers and Realization of Fair and Various Work Styles
(3) Harmonization of Work and Life
B. Attitude
Corporation among Local Government and Organizations of Labor and Management
Appropriate Policies Matching to Local Situations
5 Originally labor committees treat only collective conflicts like illegal labor actions and are not in charge of individual conflicts like illegal dismissals. But in Korea now labor committees mainly treat individual conflicts. This is a reversal situation and involves some problems.
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C. Policies
Keeping Labor Condition, Stabilizing Employment, Career Education, Care for Part-time Workers and Foreigners, Promotion of “Job Card” Policy.
Japanese Government is now trying to make the central function smaller and the local ones stronger. We can see the same tendency in the field of labor policies.
Because labor conditions are considerably different in each local area, this tendency may therefore be good for the labor-management coordination. The companies can keep good relationship between both sides under the appropriate policy framework.
Conclusion
As we saw in the first chapter, the management can avoid labor dispute by understanding the situation where the company itself and the unions are. Japanese companies chose the close relationship between management and labor union. It was social commonsense and flexible labor policy that enabled the good communication between labor and management.
The flexibility of policies is most important. The government should not control the relationship nor intervene in the labor conflicts powerfully. It should keep a certain distance from them but show an appropriate framework for the coordination between labor and management.
If there are lessons which Korea had better learn from Japanese experience, they can be the independency of local labor committee and the suggestive stance of local governments.
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