Book Review of Inequality in the Workplace: Labor Market Reform in Japan and Korea

Reviewed by: Jongwon Woo, Faculty of Economics, Saitama University, Saitama City, Saitama, Japan DOI: 10.1177/0730888415570825

This book focuses on explaining the following questions: Why did different countries embark upon various methods of labor market reform despite being subject to similar pressures, and why did such reforms lead to further divergent or convergent outcomes of labor market inequality and dualism? Song focuses on two explanatory variables: the institutional features of the employment protection system (EPS), which explain the diverging patterns of reform, and the institutional configurations of industrial relations (IRs), which explain the consequent degree of labor market inequality and dualism.

Song explores this argument in more detail through the comparative study of Japan and Korea (Chapter 2). First, she argues that the institutional features of the EPS—the institutionalization and coverage of the system—explain the diverging patterns of reform. In a system like Japan, where institutionalized employment protection covers a large proportion of the workforce, even the employers may seek to retain protection for the insiders because their production system would be closely tied to the skill and royalty of their core regular workers. Moreover, both politicians and employers are hesitant to alienate the insiders as they compose a significant proportion of the population. So, even if firms need more flexibility in times of economic downturn, they instead focus on liberalizing the market just for outsiders. On the other hand, if the employment protection covers only a small segment of the workforce, like in Korea, employers have a stronger temptation to streamline inefficient production facilities by dismissing insiders for greater market flexibility. Moreover, policymakers are not as concerned about the costs of a drastic reform because the share of those with vested interest in insider protection is small. Second, Song argues that the configurations of IRs affect the degree of labor market inequality and dualism. Centralized IRs have the political and organizational capacity to coordinate interests internally as well as between one another, so both business and labor are apt to adopt “solidaristic” approaches to the labor market and social protections. By contrast, decentralized IRs based on fragmented business and labor organizations incentivize employers and insiders to consolidate insider-friendly social protections because of their narrowly defined economic interests as well as the lack of a coordinating capacity beyond the boundary of the firm. Recently, both Japan’s and Korea’s IRs have been more decentralized, and Song asserts that this causes the deepening of the economic disparity between insiders and outsiders.

Following the outline of Japanese/Korean labor market and social protections (Chapter 1) and their institutional origins (Chapter 3), Song examines in close detail the processes and the outcomes of Japan’s and Korea’s labor market reform (Chapters 4 and 5, respectively). In Japan, both the employers and the organized labor developed the consensus that keeping the traditional benefits of employment protection for the regular workers would be beneficial to both sides. On the contrary, in Korea, employers sought the liberalization of the market for not only the outsiders but also the insiders. As for labor unions, they failed to find a unified representation in policymaking, with the huge gap between the stances of the unions of large chaebol workers and those of other SME (small and medium enterprise) workers. On taking into consideration these positions of business and labor, Song examines how each Japanese cabinet since the 1990s sought to implement specific legislation regarding the labor market, and how each president’s regime in Korea considered and implemented (or failed to implement) various policies on labor market reform.

This book provides us with the very persuasive explanation that the different institutional features of the EPS cause the diverging patterns of labor market reform. Not only the logic but also the concrete facts of the divergence this book offers us are worth examining. However, the reason why both countries consequently experienced increasingly higher levels of labor market inequality and dualism needs to be reconsidered. According to this book, the decentralized IRs cause the inequality and dualism. But Japan and Korea enjoyed more equal and integrated labor market performances before economic turbulences even with their own decentralized IRs. It follows that both centralized and decentralized IRs could attain a kind of equilibrium of efficiency and equity. Even if the decentralized IRs matter, other factors that contribute to the loss of an equilibrium should be taken into account: the decline of economic growth, which is not able to take the place of social protection; the transformation of business strategies, which emphasize cost-cutting and short-term profit rather than the sharing of employees’ risks; and the shift of social responsibilities from business to government, which is not yet sufficient to protect the outsiders.