The Economic Effects of Trade Unions in Japan

Citation

Kinoshita, T. (2002), "The Economic Effects of Trade Unions in Japan", International Journal of Manpower, Vol. 23 No. 4, pp. 376-379. https://doi.org/10.1108/ijm.2002.23.4.376.1

This book is an econometric analysis of the economic impact of trade unions in Japan. The authors question how trade unions affect wages, working hours, productivity and labour shares. Are trade unions detrimental or beneficial to firms? Their theme shares common interests with Freeman and Medoff (1984), whose research focuses on the USA. In a sense, this book is a Japanese counterpart of Freeman and Medoff.

The authors are trying to anatomize a complex organization, namely the trade union. What is the goal of a trade union? What are the function and role of a trade union for a firm or in an economy? One interesting conclusion is that a trade union may increase the productivity of a firm. The authors say that information sharing between employer and employees under the condition of uncertainty is efficiency‐enhancing, which will increase productivity.

In terms of methodology, the authors pay particular attention to the following three points. The first is the role of employees’ voices (ability to express their opinions or requests) that transmit their preferences and satisfaction to their employer. This is a very interesting point for readers, because workers’ preferences may affect many working conditions, but not necessarily fundamental management policies. The second is the comparative analysis of union and non‐union members. The authors say that participation rates have declined and the impact of non‐union members on trade unions is very important. The third point is that endogeneity (sample selection) is carefully tested. This will increase the reliability of their analysis and explanation.

Chapter 2 is on the socio‐economic background of trade unions. First, the authors explain “enterprise unionism”, which is a peculiarity of Japanese trade unions. Enterprise unionism is a crucial characteristic in Japan. It is very different from craft unionism in North America and Europe. Enterprise unionism implies “one union in one firm”, where all regular and permanent employees (both white‐collar and blue‐collar workers) join the same enterprise union of a firm. It is a very interesting point that firm size is crucial to differentiate union participation rates. Generally larger firms have higher participation rates and higher wage levels. There are some other interesting differences between enterprise unionism in Japan and craft unionism in the West, in which many readers will be interested.

Second, they stress that union participation rates have declined continuously from 58 per cent in 1949 to 20 per cent in 1999. International comparison (in 1990) is also made, which shows that Japan (25 per cent) and the USA (16 per cent) are the two lowest countries.

Chapter 3 deals with the attitude of non‐union members toward unions. Based on analysis of survey data (prepared by RIALS), the authors conclude that:

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  The perceived necessity of a union is more acute among non‐union members who worked in relatively small firms and/or have any kind of dissatisfaction.

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  On the power effects of unions, they found that about half of non‐union members do not have positive expectations.

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  Women are more unfavorable to unions than men. White‐collar are more unfavorable than blue‐collar workers.

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  Non‐union members in smaller firms are more doubtful about the power effects of unions.

Chapter 4 is on union voice, and its effects on satisfaction and separation. The authors think that one important role of a union is to transmit its members’ dissatisfaction and opinion to the employer. If it is successful, it will lower turnover rates. Developing the ideas by Freeman and Medoff and others, and using survey data by Rengo, one of the main results of an ordered probit analysis is that unions did not have any strong voice effects that increased the degree of workers’ satisfaction. Therefore unions were not successful in increasing workers’ propensity to stay in the firm.

Chapters 5 and 6 are on the effects of unions and employee contribution on wages and working conditions. Here the union/non‐union differentials in wages and working conditions are analyzed. The statistical tests of endogeneity are performed carefully. This is very important, because in Japan firm size is correlated positively with both wage level and the rate of unionization. Their findings are as follows:

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  The union endogeneity problem is not so serious in Japan. So we can safely use the ordinary least estimation method.

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  Unions in Japan had no effects on wages, but had some effect on non‐wage labor conditions such as working hours and severance payments.

(This is a remarkable contrast with the results by Lewis (1963) and others in the USA.) The result will show, the authors say, that unions in Japan are interested in the long‐run perspective and are cooperative with employers. Wage payments are a kind of short‐run benefit, while severance payments are long‐run benefits for the employee.

In Chapter 7, the effects of unions on management are examined. Using a questionnaire to employers, the authors make the following quantification on the strength of voices, which are ranked in four grades. If there is no consultation with unions or employees, the lowest score “0” is assigned. If unions or employees can express their demand strongly and the management takes account of them explicitly, the highest score “3” is assigned. An interesting result is that, in daily matters, employees in unionized firms can express their demands more strongly than those in non‐unionized firms. However, in fundamental management matters, there is little consultation with employees.

In Chapters 7 and 8, the effects of unions on productivity are discussed. Readers may be most interested in these chapters. The authors conclude that unionized firms have higher productivity than non‐unionized firms, again, similar to the findings of Freeman and Medoff. The authors suppose that trade unions encourage better communication between management and employees through various channels. On the reasoning of higher productivity in unionized firms, readers may be interested in comparing this book with Freeman and Medoff.

In Chapter 9, the effects of trade unions on labor shares (between labor and capital) are analyzed. The overall conclusion is that labor disputes have a positive effect on labor shares. This conclusion may not be so clear‐cut for readers. The variable “labor dispute” includes not only the trade union factor but also other factors such as trade cycles and the political situation.

Overall, this book is not only a good guide to Japanese trade unions but is also a good example of econometrically refined analysis. The authors utilize a variety of survey data and questionnaires, and the results are skillfully analyzed. Here, the reviewer would like to make some comments. First, most of their data are around the year 1990, when the relationship between unions and employers was rather good. It was when the bubble economy was nearing its end. Although the economy had begun to decline, the problems in economic policy and bad loans were not so serious as today. In the future if the Japanese economy falls into a more severe recession, it is probable that trade unions will become more detrimental and aggressive. Second, we cannot say that all trade unions are productivity‐enhancing and cooperative. In other words, the trade unions that are surveyed and sampled in the book might be more cooperative than average. Third, do the authors think that unionism lowers profit rates? Freeman and Medoff said that trade unions reduce profitability. How about in Japan? Fourth, trade unions are part of the internal labor market. The analysis of trade unions from this viewpoint will be complementary to this book. Koike (1983), Nakamura et al. (1988) and Ohashi and Tachibanaki (1998) are useful works in this area. Finally, what is the role or function of trade unions in the macro‐economy and in the political world? Trade unions have many aspects. They are not merely cooperative labor organizations. They are a countervailing power against management and capital in the political equilibrium. They also deserve to be analyzed from these aspects.

This book is readable and interesting. Readers may be interested in international comparison of trade unions with their own countries. Trade unions reflect not only their economic structures but also their cultures, and their characteristics are very different among industrial nations. Reading the section on the declining trend of union participation rates, it reminds the reviewer of the transaction cost theory. Readers will surely benefit much and obtain new ideas from this book.