Lifetime Job Guarantees Make a Comeback in Germany: Could U.S. Firms Follow Suit?

With unemployment in the U.S. at a steep 9.8%, the notion of lifetime job security may be alluring enough to make some folks want to pull up stakes and head overseas. Germany is currently facing a resurgence in companies offering employment for life, and in Japan, companies are still offering job guarantees to roughly 20% of workers.

But don't dust off your passport just yet: Some U.S. companies are offering shades of that guaranteed lifetime employment philosophy. For example, early this year, business analytics software company SAS trumpeted its promise to avoid layoffs in 2010 -- similar to one it made to workers in 2009, despite the recession.

"Too many companies worldwide sacrificed employees and benefits to cut costs in 2009," SAS CEO Jim Goodnight said in a statement. "SAS took the opposite stance, and we have been rewarded in employee loyalty and overall success of the business. Maintaining this position throughout the downturn puts us in the best position to meet the expected market upturn."

SAS, which this year ranked No. 1 on Fortune magazine's "Best Companies to Work For" list, offers free heath care, programs to promote health to its workers, and subsidized child care and a free recreational and fitness center at its North Carolina headquarters.

"SAS is doing something close to lifetime employment," said Hiroshi Ono, an associate sociology professor at Texas A&M University. "[Japan's] lifetime employment system, in its inception, was designed to take care of the worker's whole family. In that sense, Japanese companies offered housing, health care, use of company facilities, held company retreats to get the family involved in the corporate culture. They paid men sufficiently, so their wives didn't have to work, and the man could devote his entire life to the company and extract loyalty from workers. It's institutional packaging."

At the Heart of the Deal: Trust Between Employees and Companies


Ono and other experts say it's unlikely that U.S. corporations would ever institute lifetime employment systems similar to those that exist in Japan and Germany.

"For this whole system to work, it has to assume there is tremendous trust and commitment between worker and employer. In the U.S., people have been screwed too many times where a worker puts in 100%, but the company lays people off with little notice," observed Ono, who authored last year a paper, Lifetime Employment in Japan: Concepts and Measurements.

He further noted that systems under which companies offer employees lifetime jobs and support in their personal lives in exchange for loyalty from the employee are package deals -- and they don't work when only parts of the package are adopted.

But that doesn't mean U.S. companies never contemplated making such a drastic move. During the 1980s, when Japan was an economic powerhouse to be reckoned with, the country's lifetime employment system was pointed to as a driver for its success, says John Beck, president of North Star Leadership Group and author of the book The Change of a Lifetime: Employment Patterns Among Japan's Managerial Elite, published in 1994.

Loyalty to Employees Pays Off Later


The advantages of constant training and education inherent in a lifetime employment system made a big difference in the mid-1980s for Motorola Japan. During a huge downturn in the semiconductor business, roughly a third of the workers were laid off at Motorola in the U.S., but not a single worker was cut at Motorola Japan, Beck said.

Motorola's workers and executives in Japan took pay cuts, but during the downturn workers continued to show up at the factory and were expected to use their down time to do community service work, receive training on installing new equipment and how to repair the equipment they were using.

"They learned how to fix the equipment, so when it broke down they didn't have to call the repair people and wait," Beck said. "That's why they have one of the most efficient production lines."

Although U.S. companies have given lifetime employment plans some consideration, other societal differences exist to make its execution unlikely, Beck said. Japan's large companies, which are the ones that tend to offer lifetime employment, have a system in place in which college grads -- even those from prestigious universities -- all start at the bottom, exposing them to all facets of the company during their tenure. Those who make it to the top executive positions are often offered seats on the company's board of directors. That helps perpetuate the culture of lifetime employment, because those executives may be more sympathetic to the lowest level worker, Beck said.

In a German corporation, half of the supervisory board of directors must represent the employees, while the other half represents management. As a result, boards tend to be more empathetic to the workers, look favorably on employment-for-life policies, Beck said. "Germany's lifetime employment has been around for awhile. In Germany, a sense of fairness is high and individuality is low."

Germany is experiencing a sharp rise in the number of companies offering lifetime employment guarantees to their workers, and the country's unemployment rate has dropped to 7.5%, its lowest level in nearly two decades, according to a Bloomberg report. Chemicals giant BASF SE last month offered 33,000 workers at its Ludwigshafen plant lifetime employment, while Siemens AG (SI) took it even further in September by giving it to all of its 128,000 employees, the report noted.

Although Germany is seeing lifetime job guarantees make a comeback, Japan is noticing a total net decline in the number of workers who have access to them. Workers who currently have lifetime employment guarantees in Japan face no fear of having them removed, says Ono, but college grads are finding it tougher to get added to the system. The net effect is a decline in guaranteed jobs as the older workers who had them retire and are not replaced in the lifetime employment system to the same degree.

"I don't think employers want to abolish the program," says Ono. "I think they just want to experiment with different hybrid models for more flexibility in a changing market."


Increase your money and finance knowledge from home

Reading a Stock Quote

Learn to read the ingredients of a stock.

View Course »

Introduction to ETFs

The basics of Exchange Traded Funds and why ETFs are hot.

View Course »