Keiretsu and Lifetime Employment

How Japanese companies were organised in business groups with long-term jobs and seniority pay, and the pros and cons of this model.

Japan developed a distinctive way of running companies.

Keiretsu

After the war, the zaibatsu were broken up, but firms regrouped into keiretsu: networks linked by cross-shareholdings, a main bank and long-term supplier relationships.

Lifetime employment

Large firms offered lifetime employment to many male workers, who joined after graduation and stayed until retirement.

Seniority pay

Pay and promotion rose with years of service rather than individual performance.

Advantages

Loyalty and investment in training.
Long-term thinking.
Stable supplier relationships and quality.

Disadvantages

Rigid labour markets.
Weak shareholder pressure, allowing inefficient firms to survive.
Women and non-regular workers excluded from benefits.

Changes

Since the 1990s, non-regular employment (temporary and part-time) rose sharply, and cross-shareholdings have been unwound.

The salaryman

A graduate joins a big electronics firm in 1985, expecting to stay for life with pay rising yearly. His son, joining in 2015, is hired on a contract with no such guarantee.

Thinking all Japanese workers have lifetime jobs

Only some regular workers at large firms did; non-regular work has risen sharply.

Key takeaways

Keiretsu linked firms through cross-shareholdings and main banks.
Large firms offered lifetime employment and seniority pay.
The model encouraged loyalty but created rigidity.
Non-regular work has risen since the 1990s.