The majority of Japanese workers work in small businesses. In fact, as a proportion of total employment, this group is larger than in Western countries. Small businesses formed over 99.9 per cent of total establishments in 1991 according to the Establishment Census. In terms of employee numbers, they employed 88 per cent of total non-primary employees in 1991. In this chapter, we both discuss the quantitative importance of the small business sector and examine differences in pay and work conditions between small and large firms. Inevitably, a considerable part of our discussion is devoted to subcontracting. Not only does this activity constitute a considerable part of small business activity – over 50 per cent of small firms in manufacturing industries are engaged in subcontracting – but its raison d'̓être has also stimulated considerable interest among labour market analysts. An interesting feature in this latter respect is that the subcontracting relationship between manufacturer and part supplier closely parallels that between the firm and its workers.

Small businesses in Japan

The importance of the small business sector in the Japanese economy

In Japanese manufacturing industry, the employment share of small businesses was 73.8 per cent in 1991 (Management and Co-ordination Agency, the Establishment Census). Table 8.1 compares the shares of small businesses for key variables in several different countries. In terms of establishment numbers, small business constitutes an extremely high percentage share in every country.