Japan Studies

The Long Dark Recession

A recently released report from the Mental Health Institute of the Social Economy Productivity Headquarters should help bring a degree of rigor to discussions of this topic. The report, entitled "Employee Mental Health and Management," covers a series of studies attempting to assess the relationship between employee mental health and various management indicators.

Raking in the data
This massive project covering the period 1989Ð97 involved interviewing all employees of 23 major Japanese companies at least twice. The employees fell into a broad cross-section of industries, and a total of almost 1,700,000 interviews were completed - a huge sample size for analytical purposes.

Employees filled in the JMI -- a proprietary questionnaire of some 596 questions developed by the Mental Health Institute -- in the privacy of their own home and sent the questionnaire directly to the Mental Health Institute, where results were tabulated and sent back to the employee. Telephone advisory services and personal counseling centers were established in major cities throughout Japan to assist those employees seeking consultation. The Institute also provided overall company mental health assessments and advice to participating companies on how best to respond to problems. This combination of assessment and follow-up for both employees and their employing organizations on such a massive scale is believed to be without parallel worldwide.

Leading and lagging
The study results showed a correlation between 11 management indicators and two sets of mental health scales, nine workplace-related scales and 21 psychological scales, respectively. Management indicators included shareholder equity ratio, the ratio of operating profits to sales, headcount increase rate, and so on. Workplace-related scales included sense of job compatibility, relationships with superiors, and satisfaction with one's evaluation. Psychological factors covered areas like depression, elation, tenacity, craving for attention, compulsive behavior, inferiority complexes, and others.

Management indicator results
The strongest correlation was found between mental health and headcount increase rate. When the headcount was decreasing, relationships with colleagues and superiors worsened, the sense of belonging declined, psychological pressure increased, and work accuracy and hope for the future dropped off. On the psychological scales, there was an increase in symptoms of hebephrenic, paranoid, temperamental and hypochondriac behavior, unease, and social irresponsibility.

That eureka moment
Some more perspicacious readers may wonder why it took such a massive projectto conclude that downsizing creates stress -- hardly an earth-shattering finding. Remember, though, that the project has been going on for ten years, well before the start of downsizing in Japan. Further, the results suggest that the significant cost savings that downsizing is supposed to generate may be more difficult to realize than is bruited in the media.

An increase in shareholder equity ratio was correlated with a reduction in explosive outbursts, suggestible and self-uncertain behavior, and compulsion. The report's authors suggested that higher shareholder equity (and therefore lower levels of debt) provides a sense of stability to employees. It will be interesting to track how this correlation fares in the postÐBig Bang period, after the introduction of 401k-type plans, easier listings for VC startups, and the possible arrival of "Other People's Money" types.

Note also that there were correlations for mental health indicators and management indicators involving operating profit, but none for those management indicators involving current/ordinary profit. Perhaps operating profit can be considered something that is closer to the real world of business experienced by ordinary workers or instinctively felt by workers , e.g., in terms of how busy the company is, and therefore has an impact on mental health. Current/ordinary profits are more the result of the Finance Department juggling non-operating income and expenses, a task that does not influence ordinary workers.

Age differences in JMI scores
In general, the younger the respondent, the lower their score versus the norm on the workplace-related scale, and the higher on the psychological scale. In particular, there was a sharp drop in willingness to change among older workers, which does not auger well for Japanese companies' restructuring or attempts to move into Net-based business. There was also a low sense of belonging among younger employees -- apparently, they're not prepared to be tied for life to a single company, and other studies of dropout rates from large companies confirm this finding.

In the chart reproduced below, compared to older groups, younger employees appear to lack confidence and fighting spirit, characteristics that would be key to any revival of Japan's economic fortunes.

Overall
There is a statistically proven correlation between employee mental health and certain management indicators; although downsizing is known to be difficult to achieve in Japan, it appears likely to become more so -- especially among the older workers who are so often the key targets of such exercises; and, younger employees appear to be less comfortable with the traditional work habits and routines of their elders. Overall, the study suggests that cost-savings from downsizing will be significantly eaten up by higher mental health care and other social costs, and the restructuring so desperately needed in Japan is going to be tougher to achieve than previously thought.