Japan’s Labor Shortages in Perspective

Japan’s most urgent labor problem today is not too few jobs but too few workers.

The tight labor market has been a recurring theme of economic and business news coverage in recent months. Next year, Japan’s large corporations plan to expand their annual targets for spring recruitment of new university graduates, the preferred method for filling regular corporate positions. While this will be a boon for some, smaller firms are finding it harder than ever to attract the employees they need. Meanwhile, some of the economy’s less sought-after jobs are becoming nearly impossible to fill.

According to media reports, one fast-food chain has been unable to secure workers for its late-night shifts even at an hourly rate of ¥1,500, almost twice the minimum wage. Door-to-door delivery services have fallen behind schedule during peak periods owing to a shortage of drivers and warehouse staff.

Meanwhile, demographic trends are raising the specter of chronic severe labor shortages. NHK (Japan Broadcasting Corporation) spotlighted the issue in its July 19 edition of the TV program Nihon shinsei (Japan Rebirth), a special series of public-affairs shows in debate format.

Titled Chō hitode busoku jidai ga yatte kuru (The Coming Era of Super Labor Shortages), the program began by outlining the long-term problem. As a result of Japan’s low fertility rate and high life expectancy, it explained, the working-age population (ages 15 through 64) is not merely shrinking but declining rapidly as a percentage of the overall population. This segment of the population dipped below 80 million in October 2013 for the first time in 32 years, according to recent government figures, and projections indicate that it will fall below 60 million by 2040, creating a labor shortfall of up to 8 million workers.

But the shortages receiving media attention in recent months reflect a variety of factors—not merely long-term demographic trends but also challenges specific to certain regions and categories of business, as well as a short-term jump in recruitment triggered by the economic recovery.

One in Three Companies Failing to Meet Recruitment Targets

As a human resources researcher and consultant, I have seen a sharp increase in requests from local governments for job recruitment seminars targeted to regionally based mid-sized employers. Recruiting has always been a major challenge for such firms; their budgets are limited, and they receive far fewer inquiries per opening than the big-name Tokyo-based corporations. Now, with business picking up and companies expanding their hiring targets, competition for recruits is intensifying further, leaving regional mid-sized employers at their wit’s end.

In July 2014, Recruit Works Institute, the research division of the HR services giant Recruit Holdings, released a report on companies’ response to the tight labor market. The report was based on 1,000 responses to a June 20–24 nationwide Internet survey targeting people directly or indirectly involved in hiring at private businesses with 30 or more employees.

Of all those responding, 67.9% reported that they had been able to meet their April–June recruitment targets for regular employees, while 32.1% had not. Generally speaking, the ability to meet the targets increased with the size of the company: the rate stood at just 62.2% among companies with 30–299 employees but rose to 80.3% among those with 5,000 or more. By industry, wholesale distributors and finance companies were least likely to experience a shortfall, with 81.3% and 79.4% meeting their targets, respectively. By contrast, only 46.3% of healthcare and human services businesses and 42.4% of shipping firms met their 2014 hiring quotas for regular employees.

Meanwhile, 69.4% of the companies surveyed succeeded in filling all their openings for part-time and temporary employees, while 30.6% fell short. By sector, the highest shortfall rates were in retail (43.8%) and food service (42.4%). In sum, one in three companies surveyed found itself with a shortage of workers, regardless of employee category. The industry-by-industry statistics closely mirror the anecdotal evidence of recent media reports.

A Surge in Exploitative Labor Practices

Another labor issue that has received considerable media attention of late is the exploitation of young workers by unscrupulous employers, popularly referred to as burakku kigyō (“black corporations”). These are companies that violate ethical labor standards and habitually suck their young employees dry through excessively long hours, unreasonable performance targets, and chronic overtime. Abuse of power and unfair dismissals are rampant. As a result, many of the workers suffer from mental health issues and end up leaving their jobs. This phenomenon, which has drawn widespread public attention over the past year or two, has been exacerbated by labor shortages, which put a heavier burden on a smaller number of workers.

A related issue is the exploitation of temporary student workers, a phenomenon known as burakku baito. The BKTP (Burakku Kigyō Taisaku Purojecto, or Project to Fight “Black Corporations”) is a nonprofit created to draw attention to and combat such labor abuses with the support of labor lawyers and other experts. In the BKTP pamphlet “Burakku baito e no taishohō” (Dealing with Burakku Baito), Chūkyō University Professor Ōuchi Hirokazu defines the term as follows: “Forms of student employment that do not respect the employee’s status as a student. Have become increasingly prevalent in recent years as the role of temporary and short-term contract employees has expanded. In many cases students are forced to assume the same duties and conform to the same norms as regular employees despite low wages and are assigned such a heavy work load that it interferes with college studies and activities.”

Specific cases of burakku baito have highlighted such abuses as failing to pay student employees overtime, imposing financial penalties for work-related problems, failing to provide rest periods, subjecting employees to sexual harassment and power harassment, pressuring students to resign (or to continue working when they wish to stop), and using expedient job titles, such as “part-timer supervisor,” to assign students duties and responsibilities comparable to those of regular employees. Students are especially vulnerable to such practices because they lack the experience to stand up to unscrupulous employers and because they worry that they will be unable to find another job that fits their schedule and other circumstances. If they do quit, moreover, the employer will simply shift the burden to their already overworked regular employees. In this way the negative impact of labor shortages continues to spread.

Tackling  Labor Shortages

Because Japan’s labor shortages result from a complex combination of general and specific, short-term and long-term factors, there is no simple one-size-fits-all solution. However, by focusing on these complex and often intertwined factors, we can identify some common-sense measures to alleviate the pressures that are contributing to the problems discussed above.

The first essential step is to expand the pool of active participants in the labor force through measures to encourage and facilitate work-force diversity, focusing particularly on women, senior citizens, and disabled persons. The next is to optimize our mechanisms for helping job seekers and employers find one another. Basically, this means a bigger and more effective role for employment agencies. Internet job searches and job publications are simply not up to the task of matching job seekers to job openings. There is a serious need for agents who can link the two.

Creative Recruitment Breeds Success

Clearly, we also need creative solutions at the company level.

As a resource-poor island nation, Japan depends on its human resources to compete globally. The Japanese businesses known and respected the world over have a track record of zealous and creative recruiting. From storied corporations like Toyota, Honda, and Sony to relative newcomers like Recruit, Yamada Denki, Fast Retailing, Softbank, and GREE, Japan’s most dynamic and successful companies owe their growth in large part to personnel management—particularly their recruiting and hiring practices.

Sony made a splash with its creative recruitment policies as early as the 1960s, when it launched a series of unique and provocative ads targeted to college students. It also dropped the traditional emphasis on academic credentials. Sony was the first company to adopt the “entry sheet,” an expanded application form with questions venturing beyond the headings of the standard Japanese resume. More recently, it broke ground by allowing new recruits to choose when they wanted to begin work. The aim was to gather the most talented and diverse work force possible.

That said, such unique recruiting and hiring policies have been less evident over the past decade, a period corresponding to a steep decline in Sony’s business performance. Hopefully, Sony can resurrect its flair for aggressive and imaginative recruiting and regain its position as an industry leader.

Meanwhile, more businesses need to start thinking outside the recruiting box. To be sure, government policy has a role to play, both at the national and the local level, and those of us involved in HR consulting and services need to keep up the pressure. Unfortunately, the government moves slowly. In the meantime, the health of Japan’s labor market will depend largely on the innovation, imagination, and initiative of private companies and individuals.

(Originally written in Japanese on August 11, 2014. Banner photo: University students at a recent job fair. ©Jiji.)