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Young Japanese must prepare for an end to jobs for life

Global competition is forcing companies to be more flexible in recruitment, training and promotion

| Japan
Hiring recruits in annual batches -- for life-time employment -- will not last much longer. (Photo by Tomoki Mera)

In Japan, social change often comes only slowly. Take for example, the recent proposal by Keidanren, the big companies' federation, proposing an end to the current practice of large employers all recruiting college graduates in simultaneous annual hiring campaigns.

Corporate bosses suggested that they should scrap decades of tradition and recruit when and how they like. Universities immediately protested saying that students would start worrying about job hunting all year round and neglect their studies. The government quickly announced that the recruitment schedule would remain unchanged -- for the time being.

But, make no mistake, change will come. Fundamental shifts in Japanese labor practices are finally arriving in response to global competition, the quest for innovation and the effects of aging on the workforce. As today's cohort of 23-year-olds in Japan is fewer than 1.3 million compared with more than 2.0 million in 1996, the young in particular should be prepared for change. And not only young Japanese men and women, but foreigners as the country's jobs market is at last becoming more open.

The Keidanren's proposal to abolish the so-called simultaneous recruitment for new employees addressed one of the unique pillars of Japanese labor practice. The others are lifetime employment, a seniority-based wage structure and mandatory retirement at around 60.

Simultaneous recruitment means that all new employees are expected to follow the same recruitment schedule and be hired at the beginning of April, after university graduation in March. Year-round hiring as carried out in many other advanced countries is rare among major Japanese companies.

The predetermined schedule which covers orientation sessions, interviews and formal offers has suited universities and companies. However, companies facing growing competition for competent workers worldwide are feeling the system's rigidity. They want the flexibility of year-round hiring.

As with many Japanese proposals for a change, the public seems not ready for it because they are happy and complacent about their lives. According to a Cabinet Office survey, despite the sluggish economy of the last three decades, the share of people feeling satisfied with their life has risen to a peak of 74.7% this year while the share of people feeling anxious has declined from a peak of 70.8% in 2008 to 63.0%.

Nevertheless, the fact that recruitment proposals are actually being made shows that companies think the employment system as a whole is becoming outdated. It no longer fits the globalized world.

Under lifetime employment, workers are expected to stay in one company, usually until retirement. The benefit of lifetime employment is that the employee receives full employment protection. Japanese labor law and practice make it difficult for companies to sack employees even when the company and/or the worker is performing badly.

The price a worker pays for lifetime employment is high -- complete loyalty. Because companies usually do not assign specific job descriptions to staff, an employee can be transferred to any type of job or location at the company's discretion. Employees are routinely expected to work late to finish assignments. Moreover, if someone senior is still working, juniors will hesitate to go home first.

The lifetime employment system works against females. Companies prefer to recruit fewer women because they fear they might quit early because of marriage or having children, or resist transfers to unwelcome locations.

Moreover, it is difficult for male workers to maintain a decent work-life balance while devoting everything to the company. So, family care inevitably falls on women, making it even harder for them to fully participate in the labor market.

Naturally, young people who prefer flexibility and mobility are starting to force the system to change. Recent survey data suggests that nearly one third of college graduates would quit their first job within three years, while that share was less than 25% in the early 1990s.

Another benefit of lifetime employment is a guaranteed annual pay increase. Seniority wage structure was needed to provide employees incentives to stay. Merit-based wage systems, common in other advanced economies, are not widespread in Japan. But high-performing younger workers are no longer prepared to wait. So seniority-based pay too is breaking down.

Full job protection and seniority-based pay have been accompanied by mandatory retirement to enable companies to set a pay ceiling and a fixed departure age. With aging bringing serious labor shortages, this principle is also under severe pressure.

Under a system which emphasizes seniority, the year in which an employee joins the company is crucial. An employee usually will not be promoted faster or receive wages higher than a person who joined a year earlier. So recruitment has to be simultaneous and "classmates" are treated in the same manner.

Similarly, companies have generally educated employees themselves, rather than recruiting specialists who can contribute immediately. So college graduates are preferred over students with higher degrees or specialist qualifications. Achievements which might be considered an advantage in other countries often work against young Japanese, resulting in fewer students in postgraduate study in Japan than elsewhere.

This undermines the perceived value of university education. Companies only care about which university the student entered -- usually via very tough examinations -- and rely on an established pecking order of colleges. But employers care little about the content of the studies. It is well-known that during job interviews many companies ask questions about extracurricular activities but rarely about courses.

All of this will change. Companies have already started to recruit good students globally. Despite the language barrier, the number of foreigners working in Japan has jumped from less than 0.5 million in 2008 to nearly 1.3 million in 2017.

With global competition intense, companies will not have the luxury of spending time training employees. So Japanese students and young workers need to become competitive by investing in themselves early, in skills and professional experience. They need to build attitudes that enable independent thinking and decision-making. This will be a big challenge for people brought up in a society where conformity, rather than creativity, is encouraged.

Schools should, from an early stage, promote critical and creative thinking rather than memorization. Universities should realign their curricula to educate students who will meet the new demands of the globalizing workplace. Students should be allowed to change their area of studies more flexibly and opt for overseas study tours, internships or job hunting more freely. There is no escaping change.

Shigeo Kashiwagi has been teaching economics at Keio University since 2007. He spent 34 years in the Japanese Ministry of Finance, during which he served as Japanese executive director at the International Monetary Fund and the Asian Development Bank. From 2016, he sits on private companies' boards as an independent member.

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