Can Japan Deliver the Skills It Needs?

An ongoing shortage of high-level skills means that Japan’s labour market has yet to find balanced ground, according to the Hays Global Skills Index. Can it deliver the skills needed, or will the shortage be a threat to economic recovery?

The index, which assesses the efficiency of the skilled labour market in 30 countries, or its ability to supply skilled labour, found that in Japan the labour market is still not producing the right skills pipeline.

The index scale ranges between 0 and 10. The higher the index score, the greater the difficulty for employers in finding skills. A score greater than 5 indicates skill shortages; 5 or less indicates few if any signs of skills shortages.

Japan achieved the highest score among the 30 countries included in the index, suggesting employers have a great deal of difficulty recruiting skilled labour.

The current economic landscape is looking a lot more positive. The global growth outlook seems firmer, with Japan more upbeat.

Yet while unemployment is expected to be around the midpoint of 3–4% for the rest of the year, employers continue to struggle to attract highly skilled and experienced professionals.

It is a bitter paradox caused by employers being unable to find the skilled workers they need, particularly in more technical areas such as Information Technology and Life Sciences.

Instead of a balanced labour market where employers can easily recruit, retain or replace their key talent at generally prevailing wage rates, a shortage of professionals for jobs in high-skill industries and high-skill occupations is still evident.

The overall index score is the average of seven indicator scores.

Three indicators explore the supply of talent, namely education flexibility, labour market participation and labour market flexibility. Another indicator looks at talent mismatch.

The final three are wage pressure indicators, looking at overall wage pressure, wage pressure in high-skill industries and wage pressure in high-skill occupations.

Skill gaps can manifest themselves through wage pressure, a talent mismatch and/or supply.

Of interest in Japan are the scores for talent mismatch, wage pressures, labour market participation and labour market flexibility. Japan’s very high score of 9.1 for talent mismatch indicates that the numbers of both long-term unemployed and vacancies are increasing, suggesting that available labour does not have the skills employers want.

This mismatch between demand for and supply of skills means available candidates are not always meeting employers’ expectations for skills and experience.

Japan’s score in the area of “overall wage pressure” (9.5) shows the country is expected to face wage pressures above historic norms. We expect to see growth in wages across the whole economy, after allowing for inflation.

There is also a widening gap in pay differential between high-skill and low-skill industries, as the score of 6.1 for the “wage pressure in high-skill industries” update shows.

Much like developments in industry pay, Japan is also seeing a growing gap in pay differences between high-skill and low-skill occupations, as indicated by the score of 5.9.

The “labour market participation” category measures the degree to which a country’s talent pool is fully utilised. Japan’s score of 5.4 shows the country could do more to ensure that working-age people are employed, to ensure more talent can join the workforce.

“Labour market flexibility” assesses the legal and regulatory environment faced by businesses. In Japan, the high score of 7.1 means the labour market legislation is judged to be inflexible, with additional constraints on the ability of inward migrants to fill talent gaps.

This suggests legal frameworks and local attitudes are impacting the country’s ability to overcome skill gaps. However Abenomics may go some way to overcoming this trend, and perhaps next year’s score will see less pressure in these last two areas.

The complete Hays Global Skills Index can be viewed at www.hays-index.com/2013