The Japanese market has been an attractive market for many foreign companies (gaishikei) for a very long time now despite the sluggish growth over the last 20-30 years. However, companies that are looking to operate their business from within Japan are facing various challenges when looking at the Japanese labor market. Let’s look at the labor market from a macro perspective.

Breakdown of the Japanese labor market

Let’s look at some numbers:

1. Japan’s total population: 126 million
2. working-age population (15-60): 75.2 million

And how many of those 75.2 million are working at a foreign capital firm?

The answer: 638,000 people (or 0.84%) are working at about 3,500 foreign capital firms. The majority of these firms – about 2,500 – are located in the Kanto area of Greater Tokyo.

People working at foreign capital companies make up really only a fraction of the workforce. The vast majority of people, working or non-working have very limited exposure to foreign countries. Due to their lack of English are limited to Japanese TV and Japanese websites. That leads to some industries and areas of society being still very conservative or “behind” from a European standpoint.

Bilingual Talent?

The TOEIC score is the most commonly used way to assess people’s English skills via a standardized multiple choice test. The average TOEIC score for Japan is 516 out of 990 placing Japan 41 out of 49 countries. By the way, Japanese people are very good at passing tests but that doesn’t mean they are familiar with the material. A lot of the test preparation is about how to score high points in the test, not about how to learn English.

It also appears that the more technically specialized a person is, the more limited their English skills are. Time is limited and the more time you spend on specialization, the less time you have available for language studies. It might also be just not that important. It’s almost like a trade-off between technical skills and language skills. Finding a fully bilingual sales engineer who is specialized in a particular technology is extremely rare in the market and the talent available can usually be counted on one hand.

In addition, the labor market isn’t as easily accessible as in Europe or North America where you can easily advertise your positions for mid-career hiring and use LindedIn and other sources.

Add all those factors together and you end up with a labor market that for bilingual talent with foreign company experience does require recruitment agencies to be successful in this market. It also drove the fees up to the highest level worldwide with 25% in banking to 35% in non-financial service industries. With the low unemployment rate of 2.4% I have also heard of agencies charging up to 40% of the candidate’s expected annual salary.

Shrinking Workforce

On top of the language skills – or lack thereof – Japan is a hyperaging society with  25% of the population over 65, expected to go up to 36% by 2040 (source). From a workforce perspective, we peaked in the mid-90s at 86 million but are now down to mid-70’s level of 75 million. With such a shrinking workforce, what are the options?

1. More foreigners: Get more foreigners into Japan which is not the government’s favorite option.
2. More women: Get more women involved in the workforce. We are at a historic peak of 77.6% of women in the workforce now but aspects that are not shown by this number are facts such as that a lot of women are in non-stable/non-permanent employment positions, salary levels are (partially for that reason) lower than for men, career advancement is limited. Also, culturally, Japanese women still tend to see their role as housewife and caregiver for the kids. This is also still the “career goal” for female Japanese students who pay on average 36,000 EUR of university ”just” to become a housewife.
3. Robots & AI: Lastly there are robots, automation and AI. Robots are seen as a huge help for the elderly care (together with foreign workers from South-East Asia). The Japanese insurance company Fukoku Mutual Life Insurance also introduced IBM’s Watson AI to replace 34 employees.

Traditional New Grads Hiring

New grad hiring is an integral part of Japanese life and it is very different from what we are used to.

Recruitment in “the West” is done throughout the year including new grad recruitment. Expectations are high, people are specifically hired after graduation or right before for a particular position at a particular location, salary is individually negotiated.

While some of the new grads can be 22, others might be 30 or even 32 in which case companies would expect a certain level of work experience through internships. Some people also work first and then go to university.

In Japan on the other hand, a Japanese student starts job hunting in their 3 (out of 4) years of university and find it sometime before that 3^rd year ends. That includes writing a lot of CVs by hand (even 50-100), dressing a certain way, behaving a certain way and following proper protocol as to what to say, how to bow, how to enter the room, how to sit etc. The 4^th year of university is more about getting enough scores to graduate but are usually used to enjoy life before entering the workforce.

While in Western countries it is usually easy to get into university but hard to graduate, in Japan the hurdle is getting in but once in, it’s going through the motions and doing the minimum to get scores and people more or less ”automatically” graduate after 4 years.

As everyone starts university in April and stays for 4 years, everyone graduates in March so that everyone then again joins a company in April. While during their job hunting their company might be decided and their salary as well (usually 200,000 JPY per month before tax) their actual department, position or even location are not decided until they join. Usually new joiners are 22 or 23 and together with their year of joining it defines their position in the hierarchy. Very different from the Western approach new grads are not expected to bring hands on experience or practical skills with them. The company see it as their responsibility to teach new grads everything from how to answer the phone to how to bow, how to exchange business cards. Technical skills will also be taught. However, during the first few years after joining, it is common for employees to rotate through different departments. This way they do understand how all the departments work together and they make personal connections. At the same time they lack the technical specialization for the field they are working in.

Some Salary Stats

In the traditional Japanese employment pattern of lifetime-employment and seniority principle, new grads join at a low salary. The expectations are that employees stay with the company for “life”. And by therefore, that the longer they are with the company the higher their salary will be. It also means, they will climb the ranks naturally. Seniority beats meritocracy.

●Average salary Tokyo: 6.12M JPY (55,000 USD)

●Average salary Japan: 4.22M JPY (38,000 USD)

●Average salary gaishikei: 6.87M JPY (62,000 USD)

Women in the Workforce

As mentioned above, we have now the highest women participation rate ever. The traditional participation pattern for women used to look like an M-Curve. Women join the workforce in the early 20s, find a partner, get married, get pregnant, leave the workforce. Only very few returning will return to the workforce. Now in recent years Japanese tend to get married later, have fewer children and have them later.

It doesn’t take employment type etc. into account and a lot of women returning to work don’t necessarily do so because they want to. In many cases it is simply out of financial reasons.

Marco level very different, micro level even more different

We’ve looked at the Japanese labor market on a macro level. Here we could already identify that it is very different from “the West”. When we take a closer look at a micro level, and how cultural differences show at work, we can see that it takes quite a bit to being successful in Japan.

What is your experience? Did you work with Japanese or even in Japan? Let me know by leaving a comment down below.