Lifetime employment is a distinctive characteristic of Japan’s postwar labor system, although it never applied to many workers in the labor force and is now declining. This is how the system works: Large companies hire regular employees right out of school and keep them until retirement. New employees are chosen for their general potential, not because of any special skills or training. Such employees are considered the company’s human capital, to be trained, cultivated, and assigned to posts in the company’s best interest. Although there is no written contract guaranteeing lifetime employment, both employer and employee understand their mutual obligations under this system. The employee is to serve the company loyally and not try to leave for a better position. The employer will not dismiss or lay off the employee even in severe economic conditions. In addition, strong labor laws protect workers from being dismissed. This system also means that large firms train and promote their own employees to fill higher managerial positions, rather than hiring specialists or senior managers from outside the company. This system worked well during Japan’s long period of postwar economic growth with a young, energetic work force. In the 1990s, during a prolonged economic recession and with an aging workforce, the lifetime employment system has begun to break down.