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67 3 THE INSTITUTIONAL ORIGINS OF THE LABOR MARKET AND SOCIAL PROTECTIONS IN JAPAN AND KOREA JapaneseandKoreanlabormarketsandsocialprotectionswereestablishedduring the period of rapid industrialization.1 Although this book does not focus exclusively on the path-dependent institutional trajectory of labor market reform, it is still important to examine the conditions under which certain labor market and social protections were introduced because these institutional arrangements have had crucial consequences for recent reform by shaping the interests and strategies of reform actors. The first three sections below describes the origins and development of the labor market and social protections in postwar Japan, with an analytical focus on employment protection, industrial relations and wage bargaining, and social protections. They elaborate how these institutional arrangements were formulated and consolidated in the Japanese political economy during the period of high-speed growth. The following three sections outline the origins and development of the labor market and social protections in Korea, tracing them back to the period of the authoritarian regime (1961–1987). They present the ways in which the authoritarian government unilaterally imposed a set of labor market institutions and social protection programs on business and labor in order to achieve its ultimate national goal of rapid economic growth. The final section compares similarities and differences of the labor market and social protections in the two countries, followed by a discussion of recent challenges for Japan and Korea that have provoked intense pressure in their national political economies over the course of the 1990s and 2000s. 68 CHAPTER 3 Japan: Institutionalization of Employment Protection for Insiders Beginning in the early twentieth century, the period in which Japan began to industrialize, large firms introduced seniority-based wages, corporationprovided employee benefits, and firm-based training systems in order to stabilize high labor mobility and to retain a skilled workforce (Gordon 1985; Moriguchi 1998; Thelen 2004; Thelen and Kume 1999). The perfection of the Japanese model of the labor market, however, came with the institutionalization of strong employment protection and intra- and inter-industry wage coordination in the postwar period. In Japan, three institutional pillars of the labor market— permanent employment practices, seniority-based wages, and enterprise unions— were regarded as “three treasures” that contributed to Japan’s postwar economic “miracle,” in conjunction with cooperative industrial relations at the firm level. In particular, strong employment protection systems at the firm level—so-called permanent employment practices—were considered a linchpin upholding the institutional stability of the Japanese labor market.2 When the US occupation authorities lifted all legal restrictions on collective labor rights (e.g., rights to organize labor unions, strike, and bargain collectively) in the immediate postwar years, a wave of militant labor strikes and industrial conflicts swept over Japan, driven by unions’ vehement demands for wage increases, collective bargaining agreements, and the democratization of management (Gordon 1998; Moriguchi 1998; Moriguchi and Ono 2006).3 Amid intense industrial disputes in the late 1940s and early 1950s, a group of workers, opposing militant and radical labor movements led by leftist union leaders and worrying about firms’ productivity growth, organized moderate “second enterprise unions” (daini kumiai) and paved the way for cooperation with employers at the firm level (Estévez-Abe 1999; Gordon 1998; Hyodo 1997; Moriguchi 1998; Moriguchi and Ono 2006).4 Beginning in the late 1950s and early 1960s, most large firms and their enterprise unions—exclusively representing regular workers—gradually agreed to guarantee employment protection for regular workers (or insiders), in exchange for assured managerial authority over the introduction of new technology, the rationalization of production, discretion in skills training, and job allocation (Gordon 1998; Hiwatari 1999; Kume 1998 and 2005; Shinoda 2008).5 Japan’s firm-based training system further consolidated the institutional foundations of employment protection for insiders, especially in large firms (Kume 1998; Miura 2002b). In the early twentieth century, when Japan embarked on industrialization,its state-owned enterprises in heavy industries institutionalized firm-based skills training systems in order to supply the skilled workforce.6 Soon after, large private firms, such as shipbuilding and steel companies, emulated these training systems in the workplace,which gradually spread to SMEs (Gordon THE ORIGINS OF THE LABOR MARKET AND SOCIAL PROTECTIONS 69 1985; Thelen 2004; Thelen and Kume 1999 and 2001). Human asset specificity embedded in the firm-based skills training systems required business and labor to make long-term mutual commitments to job security and better economic rewards (e.g., high wages and generous benefits) for regular workers (Becker 1993; Estévez-Abe 2008, 177; Est...


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