Before the burst of the economic bubble in the early 1990s, the Japanese way of organizing labor within firms attracted considerable attention outside Japan. This interest was driven by two facts. First, the Japanese labor market emerged from the two oil shocks of the 1970s with a remarkably low unemployment rate, partly because of its allegedly flexible wage system. Second, Japanese human resource management (HRM) practices were considered as a key comparative advantage in the remarkable performance of many export oriented Japanese industries (automobiles, electric appliances).

With the prolonged economic downturn following the burst of the bubble, not only economic growth but also academic interest on Japan waned to some extent, and new questions started to emerge. Perhaps the most obvious is whether the Japanese way of organizing labor will survive the prolonged economic slowdown that is taking place, together with the rapid ageing of the Japanese labor force, or will Japan experience a rather dramatic structural change?

The purpose of this book is to contribute to answering this question by looking at internal labor market (ILM), the typical way of organizing labor in large and medium-sized Japanese firms, and at their evolution during the past 20 years. Briefly, internal labor markets are employment systems characterized by four key features: (a) long-term employment relationships; (b) new hirings occurring at designated ports of entry; (c) allocation of labor after entry based mainly on internal promotion; (d) individual pay influenced by administrative rules and only partially affected by market forces.