Skills-Based Hiring in Japan

Japan will need to make a major shift to skills-based hiring in order to deal with the economic changes wrought by demographics and AI, according to a new study released by the Mitsubishi Research Institute using both Japanese government data and international job vacancy data from Lightcast.

Policy Proposal for a Labor Market Common Language offers six solutions to deal with Japan’s labor challenges, all based around developing a common language of skills. This report marks the first time Lightcast international data and skills taxonomy have been applied to the Japanese labor market.

Japan faces challenges familiar to business leaders, educators, and government officials around the world. The population is aging—20 million Japanese workers will retire over the next 15 years, while the number of younger people entering the workforce is declining. 

In addition to a declining population, Japan faces a serious skills mismatch, with AI projected to replace many clerical jobs while the country faces a shortage of workers with the skills in demand for rising industries like wind power and semiconductors.

“These pressures are challenging the traditional Japanese employment system, characterized by mass recruitment of new graduates, seniority-based compensation, and lifelong employment and are starting to nudge the workforce toward greater mobility,” the report said.

Because of the lifetime employment tradition, it’s rare for Japanese workers to change companies, much less industries.

“Consequently, job postings in Japan frequently lack specific information regarding required skills and experience. Given the nature of the Japanese employment system, it is not surprising that labor data in Japan often lacks sufficient information on skills,” the report said.

The Japanese government is taking steps to address the problem, adopting policies to promote reskilling, pay workers based on accomplishments rather than seniority, and greater worker mobility into growth sectors.

But for these strategies to work, Japan needs a common language of skills in order to enable worker transitions, the report said. 

“There is one element that is missing in the reform package: the need for adequate information for workers and companies to make informed decisions,” the report said. “All actors need information regarding workers' skills, the desired qualifications sought by companies, the necessary learning paths to acquire new skills, and the rewards associated with skill acquisition. Unfortunately, in the case of Japan, such information lacks uniform distribution in a common language accessible to all.”

The report recommended six steps:

• Improve the quality of job posting data

• Enhance methods for skill-data analytics

• Link industry and occupational skill systems

• Link skills to educational content

• Use skills information to bring talent back to regions throughout the country

• Improve human capital management by linking corporate skills systems to external data

The full report is available from the Mitsubishi Research Institute.