Main benefit of life-time employment is to boost the employee’s morale and creating the workplace environment where employees believe this company is their bread-and-butter. As the result, employee with life-time employment is more likely to have the higher employee engagement, causing employee to put harder effort in work.
Nevertheless, this practice also has its own drawback. If employees no longer have any hope of promotion but are guaranteed of employment regardless of their performance, they will have no motivation or incentive to work harder, causing their productivity to plunge.
As the result, this low productivity problem in Matsushita caused Nakamura to end this practice in life-time employment guarantee. By doing so, he was able to eliminate the low productivity employee from the company. Moreover, the end of life-time employment promise at Matsushita forced remaining employees to realize that they have to be more productive or else they will risk being laid off. This sense of urgency increases the overall productivity in Matsushita.