"Department Head Salaries Lower Than Thailand's" Japan Reflects on Declining Talent Competitiveness [Global Focus]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "In Japan, promotions to section chief and department manager are slow. The annual salary for department managers in Japanese companies is even lower than in Thailand."

The Ministry of Economy, Trade and Industry (METI) of Japan included this information in its "Future Talent Vision" report released on May 31. Based on Mercer’s 2019 total compensation survey, METI analyzed that the annual salary for department managers in Thailand was about 20 million yen (approximately 190 million KRW), while Japan fell short of that figure.

METI described the characteristics of the Japanese employment system as "lifetime employment" and "seniority-based wages," stating, "In the past, the Japanese employment system was considered a source of competitiveness centered on mass production model manufacturing." It added, "However, as economic growth slowed and the premise of continuous growth, which underpinned Japan’s unique wage and personnel systems, became uncertain, the limitations of the Japanese employment system have been pointed out since the 1990s," emphasizing the need for change.

◆ Japan’s National Competitiveness Drops from 1st to 34th in Over 30 Years... 'Sense of Crisis'

The reason METI released such a self-reflective report is interpreted as their judgment that the decline in Japan’s national competitiveness stems from a lack of effort in talent development and maintaining outdated employment systems. METI cited the "World Competitiveness Yearbook" report by the International Institute for Management Development (IMD) in Switzerland, pointing out that Japan’s national competitiveness has plummeted from 1st place to the 30s over the past 30 years. METI’s data mentioned Japan ranked 31st last year, but the latest IMD report shows Japan’s ranking dropped further to 34th, falling three places.

Hirai Hirohide, Director of the Policy Bureau at METI, explained in an interview with the Japanese economic weekly President on the 30th of last month, "By 2030 and 2050, industrial structure and labor demand will fundamentally change. However, there are not many places in Japan nurturing talent capable of responding to future changes." He added, "There was a sense of crisis that if we do not change our investment in talent even now, Japan’s future will be bleak."

In fact, investment in human resources by Japanese companies is woefully insufficient compared to other major countries, and Japanese workers’ motivation for self-development is also low. According to data presented by METI, the proportion of investment in human resources relative to GDP was 0.10% in Japan during 2010-2014. This is significantly lower than the United States (2.08%), France (1.78%), Germany (1.20%), Italy (1.09%), and the United Kingdom (1.06%). Compared to the past, Japan’s investment ratio relative to GDP has gradually declined from 0.41% during 1995-1999.

◆ Low Employee Engagement, Slow Promotions, and No Wage Increase Even After Job Change

The Japanese government pointed out the socio-economic atmosphere where companies do not invest in people and individuals do not pursue self-development. Based on Gallup data, METI analyzed that the proportion of employees and organizations mutually supporting each other’s growth was only 5% in Japan. Considering the global average is 20%, with the US and Canada at 34%, China at 17%, and Korea at 12%, Japan ranks at the lowest level worldwide.

Additionally, a 2019 survey by a research institute found that the percentage of respondents who answered "yes" to the question "Are you satisfied with your current workplace and want to continue working there?" was significantly low in Japan. At the same time, the proportion of those intending to move to another workplace was also among the lowest among surveyed countries. It was interpreted that promotions to section chief or department manager are slower in Japan compared to other countries, and even if employees change jobs, about 60% maintain the same salary, resulting in low satisfaction with the current workplace and low demand for job changes.

In Japanese companies, personnel strategies are not linked to management strategies, and although investors emphasize investment in human resources as an important mid- to long-term investment and financial matter, companies recognize it less, highlighting a significant perception gap. Hirai pointed out in the interview, "Japan used to hire new graduates en masse, which was a cost-effective way to produce a large number of talents. This was a strength in the global economy at the time, but now it seems to have become a weakness." He added, "Despite entering a low-growth period, the system of mass hiring of new graduates and long-term employment has not changed. As a result, employee wages are hard to increase, and promotion speed is slow."

◆ One of Kishida’s Four Pillars of 'New Capitalism' is Talent

This atmosphere has been criticized within Japan as having been further exacerbated by former Prime Minister Shinzo Abe’s signature economic policy, "Abenomics." Noguchi Yukio, a senior economic scholar and former Ministry of Finance official, criticized in his book "The Day Japanese People Fall Out of Advanced Countries," published domestically last month, that the yen depreciation policy under Abenomics rapidly impoverished Japan, making workers poorer and halting economic growth. He has consistently pointed out that the weak yen, favorable for exports, led to a decline in real wages, causing Japan’s per capita GDP to fall below the OECD average, warning that "Japan is on the verge of falling out of the ranks of advanced countries."

Japanese Prime Minister Fumio Kishida
Photo by Reuters Yonhap News

Based on this awareness, the Kishida Fumio Cabinet plans to focus on talent development as part of future economic policies. First, Prime Minister Kishida announced a policy last year to increase tax incentives for companies that raise wages.

Also, on May 31, when METI’s report was released, the government announced the implementation plan for the economic policy "New Capitalism," mentioning "investment in people" as the foremost of the four core pillars. According to Nihon Keizai Shimbun, this includes investing 400 billion yen over the next three years to support the skill development and reemployment of one million people, promoting self-development among workers, labor mobility into growth sectors such as digital fields, encouraging side jobs and multiple jobs, and establishing lifelong learning environments. The approach now is not simply mass hiring and uniform training but nurturing talent capable of creating added value and expanding diversity to lay the foundation for economic growth and innovation. At the same time, Nihon Keizai reported that disclosure of information on human capital by Japanese companies is expected to be actively implemented.

This content was produced with the assistance of AI translation services.