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Cheap Japan: Low wages for tech workers delight foreign companies

Hong Kong, Singapore and US outshine former dream destination

People take photos of the illumination at Osaka's Midosuji district. After three decades of slow growth, Japan has become a low-paying country. (Photo by Tomoki Mera)

TOKYO -- Eunice Yeung Yin-yue, a Hong Konger who joined a Jasdaq-listed software developer in spring 2018, still remembers the worried looks from her parents when she told them about her plans to work in Japan.

"Isn't pay low in Japan?" they asked. Yeung's brother, a systems engineer in the U.S., makes four times what she earns.

Yeung pays these concerns little heed. "Things are cheaper and, more importantly, there's a lot I can learn as a web designer," she said.

But the conversation shows that Japan's status as a dream destination for workers, particularly those from developing countries, is a thing of the past.

"After 30 lost years, Japan's become a low-paying country," said Masato Shirai, partner and head of management consulting at the Japanese arm of human resources firm Mercer.

Mercer's Total Remuneration Survey, which looks at compensation in 129 countries and 19 Chinese cities, illustrates stagnant incomes for Japanese workers in the modern information economy.

Eunice Yeung Yin-yue, left, came from Hong Kong to work at a software developer in Japan. She says that wages are higher back home. (Photo by Takayuki Inoue)

Nikkei indexed annual compensation for system development managers from this data, using 2007 as the base year and a base value of 100. Japan's index has edged down since then to 99 in 2017. Over the same period, Vietnam's index jumped to 145, while Shanghai soared to 176 and Thailand reached 210.

Though stronger growth is expected in emerging countries, even other developed nations fared better than Japan, as the U.S. rose to 119 and Germany climbed to 107.

Median compensation for this class of workers in Japan totaled about $100,000 in 2017 -- less than in Singapore or Beijing. Even in Thailand, where wages tend to be significantly lower, median pay neared 70% of the Japanese figure.

Businesses worldwide are finding bargains in Japan's labor market. The head of a technology startup in California said the company is hiring more Japanese engineers, who are skilled and deadline oriented yet cost half as much as Silicon Valley workers.

This trend risks depleting Japan's talent pool for fields such as autonomous driving and artificial intelligence where advanced skills are essential.

Annual pay for cybersecurity consultants tops out around $120,000 in Japan, compared with $228,000 in Hong Kong and $181,000 in Singapore, according to Hays Specialist Recruitment Japan, the local unit of U.K.-based staffing company Hays.

In San Francisco, the heart of Silicon Valley, the government considers $129,000 a year to be "low income" for a family of four. Yet household incomes in Japan averaged 5.51 million yen ($50,700) in 2017, the labor ministry says. Just 12% or so of Japanese households earned more than 10 million yen that year.

"Overall, I'm positive on the moves Japan is making ... to increase salary levels for top tech talent," said Michael Craven, regional director at Hays Japan.

"However, if we don't move that fast enough, I think what we'll see is an increase in the talent mismatch, so [it will become] more and more difficult for organizations to find the right talent," he added, suggesting that highly skilled talent could drain out of Japan.

Pay structures are showing signs of shifting as companies worry about losing talent to better-paying opportunities abroad. Fujitsu and NTT Data offer six-digit salaries to highly capable workers in high-tech fields.

But overall progress has been slow. Seniority-based systems are deeply entrenched at many companies, and labor unions still insist on uniform, across-the-board pay raises.

"The concept of employment itself has to change," Mercer's Shirai said.

The Japanese employment model -- steady advancement at a single company throughout one's career -- put prosperity within everyone's reach during the era of manufacturing-driven capitalism in the 20th century. But without a change in mindset, Japan risks being left behind by the digital revolution of the 21st century.

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