The Journal The Authority on Global Business in Japan

This year, the American Chamber of Commerce in Japan (ACCJ) has been aligning activities and advocacy with five cross-cutting themes aimed at unlocking Japan’s growth potential. One of these is Workforce Productivity, which involves advocating for company and government labor reforms that increase focus on skill building, encourage efficiency through technological advancements, and empower diversity. The goal is to change the global mindset to create a more competitive and productive society. To learn more about these issues, The ACCJ Journal sat down with two members of the Workforce Productivity Pillar leadership: ACCJ Governor-Tokyo Ryann Thomas and Treasurer Nancy Ngou.

What do you see as the most pressing issue that, if addressed, could lead to improved workforce productivity?

Thomas: I don’t think anybody would argue against the most pressing issue in Japan being the shrinking labor force and how to meet the need for workers—particularly now, at a time when it seems that the economy is showing positive indications.

Ngou: Yes. And I would add that, with so many changes around the world, Japan has become an even more attractive place for business investments. So, more businesses are coming into Japan, vying for the same scarce labor. The other overarching issue is that the traditional company culture and career structure don’t foster a need or incentive to be efficient.

What structural reforms must Japan make to boost workforce productivity?

Thomas: The government has already started some of that process through the recent labor reform, and discussions are now underway on immigration rules and how to increase immigration in specific areas. But the changes need to be more wide ranging. Those being taken and discussed are probably short-term measures to address the issue of bringing more people into the workforce, but are not necessarily focused on how the existing workforce can be more productive.

In the long term, it’s likely that they’ll need to be more aggressive or make broader changes to really solve the problem: a lack of people to do all the work that needs to be done. So, if we’re talking about structure from a government perspective—really bringing more people into the workforce—the current labor law probably needs to go further, and immigration needs to be expanded more broadly.

When I say the current labor law, I’m referring not only to a lot of the labor law focused on overtime and other issues but also labor law that addresses reemployment of older workers, employment of women, and flexible work practices. The labor reform really hasn’t yet gone as far as it needs to in those areas.

Ngou: I agree. And to expand on the topic of diversity and flexibility, if you think about it, the traditional corporate work structure and labor laws were created when primarily men were in the workforce. A man worked for the same company until they retired, and their spouse stayed home and managed the family and household. Therein lies an inherent bias in the work structure and the labor laws built around this traditional arrangement.

Today, 62 percent of households are dual-income families. Thirty years ago, it was the opposite: about 62 percent were single-income families. Family dynamics and needs have changed, thus traditional work structures must also change to reflect today’s diverse workforce and needs. The government can support this by providing more daycare and elder care options and services. This would better enable both men and women to work and to manage the work–life balance they need.

The other reform needed is to enable labor mobility. Even if a company recognizes the need to hire more people, they hesitate to do so because they are unable to flexibly manage the size of their workforce. Providing companies with the ability to manage their workforce more flexibly will help create a stronger experienced-hire market. One way to do this would be through a new type of employment contract, which we have described in an ACCJ viewpoint. An updated version of that viewpoint will be available soon on the ACCJ website.

Employees don’t typically leave their job even if they are dissatisfied or unmotivated. Doing so can be risky given that the experienced-hire market is not very mature. If you can get the right people into the right jobs that match their skills—and if they match your company culture—these employees will have greater job satisfaction and can build specialization, which boosts productivity and innovation. Happy employees are productive, creative employees.

How does the structure of the current labor laws perpetuate low productivity?

Thomas: Because current labor laws are quite restrictive or inflexible, companies are often reluctant to hire workers—especially senior workers. If companies choose not to hire, then obviously that doesn’t help their productivity. This is particularly true if they need a more experienced, senior person. Those people tend to be less mobile under the current labor law. So, even if you want to hire someone, you may have trouble finding them.

This lack of a middle market of experienced hires reinforces low productivity. If a company must hire someone, many will hire contract workers instead of an experienced person. Obviously, contract workers will be less experienced, may not be familiar with the company, and some—although certainly not all—may not be as invested in the company. So that may not help with productivity either.

Do you believe the recently passed workstyle reform bill will have a significant impact? Why or why not?

Ngou: Just the fact that the government was able to pass labor law reform sends a strong message that this is a very important topic. It shows that they are committed to addressing workstyle reform and the need to improve productivity—measuring workers based on their productivity as opposed to the number of hours worked. It’s a good step forward.

Does the shrinking population and workforce have only negative potential for workforce productivity? Could there be positive effects on companies?

Thomas: I think most people would agree that it has positive effects. In fact, that’s becoming clearer. Morgan Stanley just issued a report on this very topic called Japan’s Journey from Laggard to Leader. Basically, the report highlights the opportunity for Japan to become a leader in increasing productivity in the workforce through the use of technology. This is because it has a well-educated population that is technologically literate. Even older people are not afraid of tech­nology. In addition, most people understand the shortage of workers and are not opposed to the application of technology in the workplace. The report also highlights the positive impact that increased immigration and the participation of women in the workforce is having on efforts to counter the overall declining Japanese population.

Japanese Prime Minister Shinzo Abe is also focused on supporting older workers who wish to remain in or return to the workforce. This may fill some of the employment gap. I think the question is whether this can all be achieved fast enough to fill the gap before it starts having greater impact on the economy.

Ngou: I think another positive is the acceleration of change. We know that we need to get more people into the workforce, and this knowledge is accelerating change as companies do more to attract and enable women to participate in the workforce. Of course, more needs to be done in the area of female advancement, but Japan’s female labor-participation rate rivals that of the United States—and this has happened in a short period of time. We also see immigration laws changing, with more focus on LGBT inclusion, attracting seniors back to the workforce, and embracing people with disabilities. So, I think the shrinking population is creating an urgent need to change and is therefore driving positive workplace action.

Does marriage equality impact workforce productivity?

Ngou: There are two main areas in which there is important impact. First is the global war for talent. Twenty-five countries have marriage equality. Japan is the only G7 country that doesn’t recognize marriage equality or same-sex partnerships. So, as we compete for global talent, if someone doesn’t feel that Japan is LGBT-inclusive, they may choose to work elsewhere. This holds true for both non-Japanese considering a move here and LGBT Japanese in Japan.

I personally know several LGBT people who have left Japan because they wanted to marry their partner and have a family, but they could not do so here. I also know would-be expats who chose not to come to Japan because they didn’t want to hide themselves again or had difficulty getting a visa for their partner. These are highly skilled individuals who are not here contributing to Japan because of the lack of marriage equality.

The second area is the general business case for inclusion. If your employees feel that they belong—that they are welcome, included, and are an important member of and voice in the company—they’ll be happier at work, more loyal and dedicated, and will expend their discretionary energy to be more productive and creative. With an estimated 10 million LGBT individuals in Japan, an inclusive culture could result in 15–30 percent more productivity potential, according to the study LGBT Diversity: Show Me the Business Case, published by Out Now Global. That business impact is significant.

Thomas: All of this is in addition to the general benefits that a diverse workforce brings in terms of decision-making and how a business operates. I don’t think there’s any doubt that the more diversity there is in a company, the better the decisions are going to be and the better the business is going to be managed. This has a bottom-line impact and makes the company more profitable. While that may not necessarily be a productivity issue, it certainly brings overall benefits to companies.

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Christopher Bryan Jones is Editor-in-Chief of The ACCJ Journal. Originally from Birmingham, Alabama, he has lived in Japan since 1997.