In the 1970s, the Japanese economy began facing serious employment problems. On the side of labor demand, the deceleration of economic growth considerably weakened the strengths of employment demand. This was particularly marked in manufacturing industries, which actually reduced employment in recent years. It was fortunate that the service sector absorbed excess labor. On the side of labor supply, the Japanese population is extending life expectancy and is expected to become considerably older in the 1980s. Japanese workers can and must work longer, and the lifetime employment system at large firms, which terminates employment at age 55 or so, has become unrealistic. However, to raise the mandatory retirement age up to 60 and then to 65 would create a serious financial burden on employers, since workers with long continued service are paid higher wages and expect substantial lump-sum payments as retirement allowances. Hence, the seniority-related wage system must be altered. Further, with more older workers competing for a limited number of executive positions, more workers get frustrated by their failure in career promotion. Failing to be rewarded for their service, workers begin to lose their loyalty to their employers. This leads to serious morale problems, particularly because more people are now getting higher education.
