Unique Aspects of Hiring in Japan

This week, we will be discussing unique hiring practices in Japan. If you’d like to catch up on what you missed, please feel free to click on the link below:

https://bit.ly/3oEStIv

Part I: Labor Productivity and Recruitment in Japan

When discussing recruiting in Japan, the first point we must consider is labor productivity. Japan's GDP is ranked third in the world, which makes it seem like a highly productive country; however, Japan has the lowest labor productivity of all developed nations.

Labor productivity is a measure of work efficiency and is calculated as shown in the figure below.

*Measures vary by industry.

Japan’s productivity lags behind highly productive countries such as the U.S. and Germany by over 30%, making it difficult for Japan to maintain its global competitiveness.

Let's take a look at the reasons for this low productivity.

・Hourly Wages

First, there is salary structure. Japanese companies calculate salaries on an hourly or daily basis with promotions and bonuses typically based on tenure, not performance. This means that employees are paid based on hours worked without regard to productivity. Employees are rewarded for working long hours, not working efficiently or delivering results.

・Expected Overtime

Everyone has experienced long workdays, but have you ever been in a situation where it was uncomfortable leaving the office while everyone else was working overtime?

When having the mindset of working overtime, one is less likely to finish on time which further decreases productivity.

・Delayed Digitization

According to a report by the American Chamber of Commerce in Japan (ACCJ) and McKinsey & Company Japan (2030 Japan Digital Reform), Japan's digitalization is behind the rest of the world. This is partially due to risk-averse thinking and a lack of talent, knowledge, and leadership capable of promoting digitization in the public and private sectors.

These days, information is just one click away and systems can be easily implemented. Additionally, it is no longer difficult to train talent online. Lack of digitalization may be the most impactful factor in the decline of productivity in Japan.

As a manager, it is necessary to think carefully about your company's labor productivity to generate further growth and profits, rather than viewing the decline in productivity as a national problem.

Part II: How Do We Increase Labor Productivity?

In countries with high productivity, individualism, annual salary, and performance-based pay systems are standard practice.

Japan is a culturally difficult country in which to make immediate changes. Because of an emphasis on cooperation and working well with others, people often struggle to balance individualism with being a team player. In terms of the wage system, it is predicted many companies will shift from the monthly salary and bonus system to an annual salary system that is based on performance.

As an example, in global RPO organizations, employees are paid an annual salary because they are recruitment specialists judged on the results they deliver. Consultants have control over their schedule and are evaluated on individual performance while still being part of a team. This results in high productivity.

Furthermore, the use of specialized outsourcing increases productivity. Having an RPO firm focus on specific talent acquisition operations often achieves greater results for the client organization and reduces hiring and associated costs.

In recent years, RPO has gained popularity in Japan, but in Europe and the United States, it is a widely adopted service utilized by many companies. RPO has solidified a permanent place in the talent acquisition solutions market and is not just a trend. An increasing number of companies now understand the many benefits of using RPO services.

Part III: Japan’s Unique New Graduate Hiring System

In Japan, the general trend is to hire new graduates in April each year; however, the Keidanren (Japan Business Federation) has announced a shift from mass hiring to year-round hiring of new graduates and reached an agreement with universities in 2019 to shift toward year-round hiring in 2025. This will provide new graduates with new opportunities to expand their job search for the first time, which will mark a phase of major change in Japan’s employment practices.

https://www.nikkei.com/article/DGXMZO43901930Y9A410C1MM8000/

Overseas, this year-round hiring system is the norm. Since companies are free to hire at any time, they are able to secure new employees efficiently. This creates an advantage for companies to hire candidates with career experience and allows job seekers a better chance to apply for their desired positions.

It is expected that these overseas standards will permeate Japan and that practices such as the seniority system and mass hiring of new graduates will change. As a result, competency-based hiring will become even stronger and competition for talented people will intensify.

In my next post, I'll focus on work-life balance as seen through the eyes of foreign hiring practices.

Don't miss it!