Understanding Japan’s unique labour market

Ken Koda 04 Mar 2019

Despite stuttering in the last few years, Japan’s economy has largely recovered from the financial crisis. Given this fact it’s hard to contemplate the labour shortage that exists within the market.

According to a recent financial report from Japan Macro Advisers (JMA), the ratio of job offers to applicants was approximately 1.63 in Dec, 2018. In this month there was an estimated 2,839,840 vacant job positions and 1,743,820 job applicants. This gap has led to a tightening of the labour market here in Japan. 

job offers to applicants

To understand the labor shortage in more detail, it’s important to analyze the market broadly as there are several internal and external factors that have contributed to this phenomenon.

To begin, Japan has been struggling with a declining population since 2010. It also has a rapidly ageing population, with retirement numbers far higher than the number of people joining the labour force; and this number is accelerating. This has decreased the number of people of working age, leading to labour shortages. It’s estimated that of the 127 million people living in Japan, only 66.1 million are considered part of the labour force as of 2018 (figures provided by the World Bank). And within that number only 610,000 work in multinational corporations. These numbers are staggering and represent a significant shortage in the number of qualified candidates seeking new employment in Japan. 

Based on these observations, one would think that the Labour Force Participation Rate (LFPR) would be shrinking. However, in recent years, labour force participation has in fact been growing, especially since 2012. The LFPR represents the percentage of people of working age currently employed or seeking employment. To look at this more clearly, we can take a closer look at the LFPR for Japan from 2012-2018 (figures provided by the World Bank). 

Labour Force Participation Rate (LFPR)

Here we can see a significant increase over the years from 58.5 in 2012 to 61.4 in 2018. 

Although there are various explanations for this, one of the main reasons would be the increased female participation in the labour force in Japan. This has led to an overall increase in the LFPR.  Despite this fact, Japan’s LFPR still does not compare favourably with similar economies around the world, as illustrated in the table below (statistics compiled by Trading Economics). 

Labour Force Participation Rate by country

One factor contributing to Japan’s labour shortage is immigration rates. Currently it’s estimated that foreigners make up only 1.28 million of the 66.1 million people currently working.  To put this in perspective, foreign workers in Japan constitute 2% of the workforce. Currently the government is trying to increase this percentage despite having strict immigration policies. The Japanese government is looking at relaxing some of these restrictions and last year passed a long-awaited legislation easing restrictions on blue-collar workers. The positive impact of this could be two-fold as many of these workers will work in the child-care industry, making it easier – and cheaper – for woman to return to work. Having said this, Japan still compares unfavorable to other developed countries when it comes to immigration with a largely homogenous society and cultural barriers to immigration. And it’s important to remember that Japanese language proficiency is still critical in most Japanese and even foreign companies and this limits opportunities for people coming from outside of Japan. As such, there are still issues surrounding labour shortages that limits Japan’s potential market growth. 

The final - and perhaps most important - issue facing Japan’s labour market is the general lack of mobility. Although the solution to this problem main appear simple, it can be extremely difficult considering it is mainly derived from the values society has established through history. These cultural norms and values impact how working people view job opportunities and changing their career. Working for a company can be seen as the equivalent to finding a wife or husband, and it is common to work for just one company until retirement in Japan. In most cases this is not necessarily a result of job satisfaction or fulfillment, but rather the desire to be committed and loyal as changing companies can be frowned upon. 

In my opinion, although there are many issues associated with the labour shortage in Japan, the Japanese labour market’s mobility has improved compared to a few decades ago. We now see a higher rate of turnover in many companies – especially multinational ones - and hiring managers are more open to considering candidates who have previously changed careers. Nowhere is this more evident than in the financial services industry – the area I recruit for - where we have started to see higher turnover in many of the bigger banks. Also, with the challenges facing most Japanese banks, the concept of life-long employment is starting to erode. Most Japanese banks are looking to cut costs and improve efficiencies to allow them to compete in global markets. There is a risk of redundancy that is unprecedented in Japanese labour markets. 

But we still have some way to go and given that there are more job positions than candidates, it is safe to say that candidates who are looking for work in Japan have an advantage. They shouldn’t feel so undervalued as their stock in the market is very high. 

If you want more information with regards to the labour market in Japan, or wants to discuss possible opportunities, please do not hesitate to contact me. 

Ken Koda's picture
Associate Consultant | Financial Services Recruitment
kkoda@morganmckinley.co.jp