How reskilling can help transform the future of work in Japan

Increasing the value of people. This is one of the most essential things a country and a company can do to increase its value, while maintaining its economic strength in these times of rapid change, when the power of innovation is increasingly being tested. Reskilling is indispensable in order to create change that puts people at the centre and makes the most of them.

With the acceleration of corporate digital transformation efforts and automation, interest in reskilling has been growing on a global scale. In the midst of all this, the spread of COVID-19 has made reskilling even more indispensable, as working styles have diversified and the demand for digitalization has increased rapidly.

Since launching its Reskilling Revolution initiative in 2020 to provide one billion people with better education, skills, and jobs by 2030, the World Economic Forum has been working with more than 350 organizations to develop a global workforce with the skills needed for the future of work.

The challenges facing Japan's labour market are interacting and becoming more complex: a shrinking workforce due to a declining birthrate and ageing population, low labour productivity, digital disparities between rural and urban areas and between large and small companies, and wage levels that have remained flat for the past 30 years.

Japan's population of the working-age group in 2030 is expected to be 92% of its 2020 level, and 68% by 2050, indicating that a serious shortage of labour is inevitable.

Mitsubishi Research Institute estimates that by 2030 there will be an excess of 2.1 million people in production and clerical occupations, which had previously accounted for most of Japan's labour force, and a shortage of about 1.7 million people in specialized technical occupations.

It is clear that effectively reskilling this surplus will be extremely important to halt the widening gap between supply and demand, particularly for workers with digital skills.

Although the government and companies are beginning to take a more proactive approach to reskilling, in general, penetration among workers is still shallow and awareness varies. One reason for this is a structural factor rooted in Japan's labour-related practices and human resource system.

Traditionally, Japanese companies have adopted a lifetime employment system and a seniority-based wage system.

Because it has been common to hire a large number of new graduates all at once without clearly defining job descriptions – and to have them experience positions in all fields through what is called ‘job rotations’ in which companies regularly transfer employees to different departments every two or three years – employees tend not to feel the need to strategically build up their careers and expertise.

Despite these employment practices, Japanese companies are making great strides in change. Mitsui Chemicals, for example, is engaged in digital transformation (DX) education for all 11,000 employees of its group companies in Japan.

With digital technologies such as artificial intelligence (AI) and quantum computers becoming essential to efficiently find new materials, the company aims to accelerate research and development and create new businesses.

Some JPY 100 billion (about $765 million) is planned to be invested in DX-related investments, mainly in human resource education, by 2030.

Meanwhile, SOMPO Holdings, which operates an insurance business, has added a new digital business to one of the company's core businesses, including domestic property and causality (P&C) insurance business and overseas insurance, and is focusing on developing digital human resources.

As the company prepares for a future in which its P&C insurance business will shrink as the risk of traffic accidents and the number of insured people decrease due to the spread of automated driving and sharing services, it is now focusing on building a real data platform.

This platform will serve as the foundation for providing services for the company's new solutions business, which will analyze real data accumulated through the insurance and nursing care businesses and link it to solutions for social issues.

By reskilling employees who are familiar with the company group's existing businesses as digital human resources, SOMPO Holdings aims to expand its new business.

In line with this corporate momentum, in October 2022, the Japanese government pledged to spend JPY 1 trillion ($7.5 billion) in the next five years on reskilling workers, while encouraging firms to make pay scale more flexible.

As the first phase of the initiative, the government plans to develop a system where individuals can consult with experts on their careers and receive comprehensive support for reskilling and changing jobs.

With each technological innovation, our society has moved forward, changing the skills needed and the way we work. Reskilling workers is not enough to create jobs and organizations that are in tune with the changing times and environment.

Companies need to work in parallel with reskilling efforts to create an environment in which individuals can fully demonstrate the skills they have acquired in response to the changing times. Organizational structures, salary systems, and work processes will also need to be reformed.

Human resources must be reconsidered not as resources or costs, but as human capital. This will bring hope and possibilities to the future of work in Japan, and will drive the transformation of the social economy based on digitalization and greening.