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Japanese Corporations Face the Job Cut Taboo

Cultural and political pressures have militated against severe cutbacks, but firms may ultimately find they have no other option.
/ Source: Forbes

Following some scuffles, Tokyo police officers on Sunday managed to wedge their way through a scrum of protesters to close the doors of the Keihin Hotel after 138 years in business. The run-down building, which opened its doors when samurai still strolled the capital's streets, would have ended its long history in October had employees gone home when the debt-saddled owner laid them off. Instead, they kept the business running.

Almost a taboo in Japan, layoffs are often the last resort for corporations struggling to cut costs. Few dare to order the kind of swift job cuts common at Western firms. Yet, with the global economic slump beginning to take its toll on Japan Inc., the need to trim expenses is growing, and companies may be left with the stark choice of sacrificing either jobs or profits.

When talking about job cuts on Jan. 23, Sony boss Howard Stringer promised to be "sensitive." The consumer electronics firm has so far said it will terminate 16,000 people worldwide, which may include a couple of thousand positions in Japan. Toyota, facing an unprecedented slump in sales, has idled production lines. It has yet, though, to announce any major job losses. The carmaker may build 1 million fewer vehicles in Japan this year than last, the country's leading daily, the Yomiuri Shimbun, reported.

In Japan's hierarchy of employment, the first to go are usually the temporary, or contract, workers, who are often not counted among companies' staff numbers. Chip maker NEC Electronics this month said it was going to sack nearly all its fixed-term employees, amounting to 1,200 people.

Locked out of the hotel they occupied for three months, workers at the Keihin will now join the ranks of Japan's unemployed. Though it is still low, the jobless rate in November rose to 3.9%, from 3.7%. Labor officials expect the absolute numbers to swell, and that is spooking a government, which must hold national elections before the end of September.

The result is political pressure on corporations to retain their idle workers. In December, Prime Minister Taro Aso, whose approval rating has dipped below 20%, urged companies to raise wages and keep hiring. He did not, however, mention anything about the smaller returns shareholder might expect as a consequence.

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