[Special Feature: Rethinking Japanese "Work Styles"] Akie Nakamura: What is "Labor Mobility" That Makes People Happy?

It is often said that "labor mobility should be increased" for the sake of corporate competitiveness and economic growth. Labor mobility can now be seen as a keyword symbolizing the dysfunction of Japanese-style employment. However, in discussions about labor mobility, I sometimes feel that the perspective of the individual workers—who should be the primary stakeholders—is missing.

I would like to ask the readers: what kind of situation does "labor mobility" refer to for you?

1. It becomes easier for companies to dismiss employees

2. The number of people working in fixed-term employment increases

3. Job changes/mid-career hiring increase

When corporate executives talk about labor mobility, they often refer to (1). Furthermore, the labor mobility that labor unions fear is (1) and (2). In particular, (1) has become a point of conflict, with the management side arguing for its necessity as something that transforms the core of Japanese-style employment—the lifetime employment of regular employees—and the labor side opposing it. Labor and management clash because labor mobility, which increases management flexibility, creates a trade-off that threatens the stability of workers' lives.

So, is employment better for workers the longer it lasts? No. Treating long-term employment as the only absolute truth can actually drive individuals into unhappy situations. That is why I would like to use the results of an international survey in this article to convey that the expansion of (3) job changes—especially those with a salary higher than the previous job—is important.

First, let me introduce the idea that long-term employment is not the only correct answer for individual career formation. Figure 1 shows the results of a survey I conducted during my time at my previous job (Recruit Works Institute) targeting university graduates in their 30s and 40s working for private companies in urban areas of five countries with different employment practices: Japan, the United States, France, Denmark, and China.

At a glance, Japan's waveform is smaller than other countries, showing that many Japanese people are not satisfied with their relationship with their companies. It is hard to call it happiness for an individual to continue working at the same workplace despite being unable to empathize with the management philosophy and being dissatisfied with the work, salary, and human relationships. For companies as well, it should be more desirable to have many employees who work with high satisfaction rather than employees full of complaints.

Moreover, this data shows an even more shocking situation. Despite the fact that the percentage of Japanese people dissatisfied with their work content, salary, and human relationships is higher than in other countries, the percentage of those who "want to quit their current company" is almost the same as in other countries. Normally, if there is this much dissatisfaction with the relationship with the company, the percentage of those who "want to quit" should be prominently high. However, that is not the case in Japan. They do not quit even if they are full of complaints.

In this state, the relationship between the individual and the company becomes a "Lose-Lose" rather than a "Win-Win." There is something in Japan that makes people feel they cannot want to quit, or simply cannot quit, even if they are full of dissatisfaction.

Japanese people do not quit even if they are full of dissatisfaction with their company or work. A major reason for this is the lack of options—the inability to move to a better job than the current one.

Figure 2 summarizes the changes resulting from job changes in five countries. There are three items where the difference between Japan and overseas countries is large.

One is the percentage of those whose "annual income increased by 5% or more" through a job change. In the US, France, Denmark, and China, this percentage exceeds 70%, but in Japan, it remains at 45%. Although the data is omitted here, the percentage of those whose "annual income decreased by 5% or more" is 18% in Japan, which is more than 10% higher than in other countries.

Also, the percentage of those whose "position rose" through a job change is over 40% in other countries, whereas it remains at 10% in Japan. On the other hand, the percentage of those whose "company size became smaller" is 18% in Japan, nearly 10% higher than in other countries.

In summary, compared to other countries, job changes in Japan tend to make it harder for income to increase (and easier to decrease), positions do not rise, and company size becomes smaller. In other words, while job changes abroad allow for career advancement and improved treatment, such "upward mobility" is difficult in Japan. On the contrary, it is not uncommon to be forced into "downward mobility" where treatment declines.

Changing jobs is an act of resetting the firm-specific skills and human networks cultivated at the previous company and building them anew. Even if the treatment at the new company is the same as the previous one, the reconstruction of firm-specific skills and human networks involves a burden and effort. If the treatment drops, the burden of changing jobs becomes even heavier. If the burden is heavy, some people will shy away from it and give up on changing jobs. In fact, about 30% of those considering a job change give up because "there are few options that meet my desires regarding wages and treatment conditions" *1.

Conversely, if job opportunities that increase income and position grow, job changes will naturally increase.

While income increases through job changes abroad, it does not in Japan. If anything, it decreases. When investigating the reasons for this, two structural factors emerged.

First, in mid-career hiring, the pattern is often that a "late-mover" business adopts talent from an "early-mover" business rich in human resources—for example, a small or medium-sized enterprise hiring someone who gained experience at a large corporation, or a manufacturer hiring someone from a trading company. Companies that can invest in a business early tend to have higher salaries. Furthermore, other companies also want talent with such early-mover experience, leading to competition for recruitment. Therefore, companies that can only offer low salaries struggle with hiring *2.

Second, the wage and personnel systems of Japanese companies are rigid, and the inability to flexibly set treatment according to the candidate's evaluation in the labor market or their treatment at their previous job is hindering the expansion of job changes and mid-career hiring *3.

Wage and personnel systems in Japanese companies, where long-term employment is rooted, emphasize internal equity. In contrast, in the United States, where the labor market is fluid and competitive, compensation systems emphasize external equity. Therefore, when American companies hire highly skilled white-collar talent, they set compensation considering market evaluations and treatment at the previous job.

To be specific, when hiring talent who earned a salary of 12 million yen at their previous job, a Japanese company might offer 1000 million yen to match its own wage and personnel system, whereas an American company would offer 13 million yen. Naturally, the latter is more attractive to the job seeker. While companies that increase income attract job seekers, companies that decrease income make them hesitate.

Moreover, these two factors are closely related. This is because companies with low wage levels cannot hire because they try to acquire talent while maintaining rigid wage and personnel systems; even a company with low wage levels can increase its talent acquisition power if it can offer high wages or positions depending on the candidate. In short, the rigidity of wage and personnel systems is hindering individual job changes.

Up to this point, I have examined why labor mobility, especially job changes, does not increase from the perspective of the individual. However, since the problem of rigid corporate wage and personnel systems has emerged as a factor, I will now switch to the corporate perspective—that is, examining it from the viewpoint of hiring rather than job changing.

Figure 3 shows the results of an analysis of factors that increase the recruitment power of companies in Japan, the US, and France. Unlike American and French companies, for Japanese companies, "offering higher-than-usual compensation" is effective both for improving recruitment results, such as the number of hires, and for post-employment results, such as performance after joining. Additionally, for Japanese companies, implementing "personnel systems and work-style reforms to realize strategies" is also effective for improving recruitment and post-employment results.

The reason why "offering higher-than-usual compensation" is effective for Japanese companies but not statistically significant for American or French companies is likely because, as mentioned earlier, American and French companies already offer compensation considering external equity when hiring talent such as managers and highly specialized professionals. Therefore, simply raising compensation does not differentiate them from recruitment competitors. On the other hand, because Japanese companies have historically only offered salaries within the scope of their own wage and personnel systems even for talent highly valued by other companies, they can increase their recruitment power by removing those constraints.

Companies offering high compensation in recruitment encourages individual job changes, increases corporate recruitment power, and facilitates labor mobility. In our country, where wage increases have become an extremely important social issue, this will also lead to the expansion of labor mobility accompanied by wage increases. However, to reiterate, the wage and personnel systems of Japanese companies are rigid. How on earth can companies offer higher-than-usual compensation to candidates?

One breakthrough for companies to escape rigid wage and personnel systems and provide high compensation to excellent and promising talent is the transition to the currently much-discussed "job-based employment." While various points have been made regarding the understanding and pros and cons of job-based employment, I will leave those to other articles *4 and focus here on the actual content of personnel system reforms in Japanese companies.

The major difference between traditional Japanese-style employment and "job-based employment" can be explained as follows. In traditional Japanese-style employment, promotions and grade increases are based on age and years of service, and once a person moves up, there is virtually no demotion or salary decrease until the mandatory retirement age for the position. In contrast, in job-based employment, salary is determined by job content and roles, and both promotions and demotions are possible. In other words, the characteristic of the "Japanese-style job-based employment" currently being introduced by large corporations is to review internal equity, which relies heavily on individual attributes like seniority, and move toward treatment that matches work performance and market evaluation.

The reform to increase the flexibility of wage and personnel systems is precisely the transition to job-based employment, which corresponds to the "personnel systems and work-style reforms to realize strategies" in Figure 3. Furthermore, adopting job-based employment makes it easier to perform selection-based personnel appointments regardless of age or custom, making it easier to offer the "special career paths" shown in Figure 3. Job-based employment is an effective personnel system for increasing recruitment power.

Since it is difficult to completely transition the personnel system to job-based employment, some companies are introducing "job-based hiring" only for the acquisition of talent in specific occupations or posts. The utility of job-based hiring was also proclaimed in the 2020 "Report of the Committee on Management and Labor Policy," where Keidanren advocated for the transition to job-based employment, stating that "offering job-based hiring with treatment different from the usual, taking market value into account for highly skilled talent, can be an effective method."

Let us summarize. While values emphasizing long-term employment are deeply rooted in Japan, being "unable to quit despite being full of dissatisfaction" is a misfortune for both individuals and companies. Therefore, the development of an environment where one "can change jobs if they wish" is desired. An environment where one "can change jobs if they wish" does not simply mean finding a new job, but the existence of options to work with more fulfillment and better labor conditions than the previous job. The key to creating those options is the expansion of recruitment and job change opportunities with salaries higher than the previous job.

Until now, because Japanese companies had rigid wage and personnel systems, it was difficult to hire talent who fell outside their own salary ranges. However, in recent years, an increasing number of companies are increasing flexibility in talent appointment and treatment determination through personnel system reforms under the banner of transitioning to "job-based employment." Even without fundamentally reviewing the personnel system, it has become possible to increase recruitment power through the partial introduction of "job-based hiring." The foundation for facilitating labor mobility is finally being prepared.

Until now, labor mobility has had aspects that imposed a burden on individuals to increase management agility, such as the relaxation of dismissal regulations and the problem of unstable employment. However, a society where individuals cannot live with peace of mind and have no prospects for the future is not sustainable. What society needs is not labor mobility that is convenient only for the management side, but labor mobility that allows individuals to live happily. For that, the expansion of opportunities to change jobs with a salary higher than the previous job is essential.

By reframing labor mobility from the perspective of individual happiness and having companies and the government promote it, healthy labor mobility will spread in Japan, where the external labor market is immature.

*3 Akie Nakamura (2020) "Recruitment Strategy" (Keio University Press)