Institutionalized in-house careers as a structural barrier to productivity growth in Japan
(German Institute for Japanese Studies)
Paper short abstract:
The paper (a) describes the relevance of in-house careers in Japan, (b) analyses their negative impact on productivity at the micro, meso and macro level, (c) points to possibles channels through which external markets for skilled managers might be developed.
Paper long abstract:
In-house careers are common in all larger organizations around the world. But in no other modern economy do they continue to be as predominant as in Japan. They form the core of what has been known as the "Japanese employment system" or the "J-firm." Their system-wide diffusion was not only supported by Japan's post-war economic success, it also largely contributed to it. Since the end of the high-growth period, and even more so after the burst of the bubble economy, the downsides of institutionalized in-house careers (IIC) with regard to productivity growth have become more apparent. The paper will elaborate on these negative effects. At the firm level, IIC induces risk aversion, unproductive "loyalty competition", and lack of diversity. At the industry level, it restricts the efficient reallocation of resources between firms, and prevents that the best managers move to the most promising firms. At the level of international division of labour, IIC puts Japanese companies at a disadvantage in the "war for global talent" and in general limits their capacity of effectively integrating their business operations globally. The paper ends by pointing out how change might be brought about despite the strong path dependency typical of core institutions.
Employment, labour markets and career structures