The Worker-Employer relationship disrupted: a Japan perspective
1. The worker-employer relationship in flux
The COVID-19 pandemic has strained and tested the relationship between workers and employers. Employers are being called upon to support workers' health, livelihoods and dignity to an unprecedented degree, and their success - or failure - to do so, has come under increasing scrutiny. The result is that developments in the nature of the worker-employer relationship that might have played out over a period of many years, have been compressed into a matter of months. Recent studies indicate that, 63% of Japan's workforce are considering leaving their employers and 37% of those are actively looking for a job change. At the same time, 80% of companies are concerned about talent shortages in their industry, with 48% of technology companies 'very concerned' about finding workers with the right mix of technical skills and human capabilities. It has become clear that whatever we thought the worker-employer relationship was before the pandemic, there is no doubt that it is now in a state of flux.
What is less clear, is exactly what form the worker-employer relationship may take moving forward and the implications that may have for workers and employers in Japan. Deloitte's 2021 Human Capital Trends Special Report, explores how the worker-employer relationship might further evolve amid the uncertainties of a disrupted world, and highlights that going forward, thriving in an uncertain future depends on having a compelling vision for where that relationship should go.
2. Talent supply and government impact: key contexts for the worker-employer relationship
Deloitte's Special Report offers insight into the factors which are likely to have the greatest influence on how the worker-employer relationship may evolve. That research explored a multitude of possible factors, including economic growth, the use of technology in business, unexpected disasters, climate change, and social divides regarding access to resources such as education, wealth and health. However, the two factors that stood out in the research as likely to have the greatest influence on the future of the worker-employer relationship were talent supply and government impact.
2.1. Talent supply
Talent supply has long been a burning issue in Japan due to its ageing population. According to OECD reports, Japan has the highest ageing population of all OECD countries, with the percentage of people aged 65 and above projected to rise to 79% and result in a talent supply contraction of 20 million, by 2050. The most evident impact of talent supply is the different actions that organizations or workers might take depending on how easy or difficult it is to get a job or secure an appropriately skilled worker. For instance, talent supply could influence whether organizations are likely to invest in reskilling; to what extent workers will seek changes in their employers or careers; how organizations could use the alternative workforce to access the skills and capabilities they need; and how heavily an organization might lean on technology to replace, augment, or collaborate with their workforce.
2.2. Government impact
The type, consistency, speed, and effectiveness of government action in the post-pandemic world could all influence how the worker-employer relationship may evolve. Government effectiveness in driving social change and in setting public policy and regulation that protects jobs and wages, enhances social safety nets and benefits, and improves access to education and investment in reskilling, could decrease workers' reliance on their employers to provide such support. In Japan, the government affords workers with a very high degree of legal protection from termination of employment, with any termination subject to scrutiny for compliance with legal dismissal requirements. In fact, according to the World Economic Forum, Japan is one of the most restrictive countries in the world for employers to dismiss their permanent workers, stemming from its culture where the worker-employer relationship has traditionally been defined by lifelong employment and based on a strong sense of loyalty and stability for both workers and employers.
3. Four possible futures for the worker-employer relationship
Following the research from Deloitte's Special Report, we use these two factors, talent supply and government impact, to explore four potential futures that illustrate how the worker-employer relationship could evolve in Japan:
- Work as fashion: In a "work as fashion" future, employers are in constant motion as they chase worker sentiments, competitor actions, and marketplace dynamics, without connecting those actions to a sustainable workforce strategy.
- War between talent: In a "war between talent" future, employers view workers as interchangeable and easily replaceable, while workers are more concerned with competing with each other for jobs than with the quality of their relationship with their employer.
- Work is work: In a "work is work" future, workers and employers each depend on the other to fulfill work-related needs, but both expect that workers will find meaning and purpose largely outside of work.
- Purpose unleashed: In a "purpose unleashed" future, both workers and employers see shared purpose as the foundation of their relationship, viewing it as the most important tie that binds them together.
It is important to understand that these four futures are illustrative only, not exhaustive. They each co-exist together and there is no one future that is better or worse than any other. Nor is there any one preferred future. Each of the futures can bring out certain strengths for employers and workers as well as introduce certain risks to be navigated, depending on the choices that workers and employers make. Organizations will likely find themselves in some combination of these futures, depending on the needs and expectations of their workforce, their industry, their regions, communities, and the legal frameworks in which they operate.
3.1. Work as fashion:
In a "work as fashion" future, employers are constantly chasing worker sentiments, competitor actions and marketplace dynamics. The worker-employer relationship is REACTIVE: employers feel compelled to respond in the moment to workers' expressed preferences, and to competitor moves, without connecting those actions to a sustainable workforce strategy. This is a future that is transitory and constantly changing, akin to how brands introduce new clothing collections seasonally and cyclically, moving them rapidly from runway to retail to capture consumers' fleeting attention and desires.
A convergence of low talent supply and low government impact could create the conditions for a "work as fashion" future. Low talent supply creates a seller's market for workers, especially for skilled workers. In such conditions, workers can base their choice of employer on what each is offering and how well those offerings meet their immediate needs, while employers become acutely attuned to their workforce's preferences, as well as what their competitors are doing, to compete for workers' attention and approval. This is a mirror image of the "war between talent" future where it is workers competing for the attention and approval of employers. And with low government impact, where government does not offer workers with the support they feel they need - such as access to health care, workplace protections and reskilling opportunities - workers expect employers to provide what they are not able to access elsewhere and, with the shortage of talent supply, workers have the upper hand and are in a position to demand it.
Signals that the future could be headed toward "work as fashion"
- Increased employer reliance on worker surveys and other listening tools.
- Increased employer activity in measuring themselves against competitor and industry benchmarks, and of adjusting practices to align to benchmarks.
- Continuous changing and rollout of worker programs and policies.
- Increased external marketing of worker incentives.
- New levels of social activism from employers.
Deloitte's Special Report hypothesizes that Work as Fashion may be the dominant future for 2021 and 2022. This is consistent with current trends being observed in Japan where the talent supply crises due to the ageing workforce and the high percentage of workers seeking to change jobs, is a paramount concern for all employers. Organizations are recognizing that in order to attract, engage and develop the talent they need, they must redefine workforce and talent strategies around the things that are important to workers. In Japan, flexible working policies are gaining traction as a strategy to compete for the attention and approval of workers. In fact, 6 in 10 companies are reviewing their workforce strategy to accommodate remote and flexible work in an effort to reduce turnover and entice women to join the workforce. For example, Fujitsu have recently rolled out policies supporting permanent working from home, while Japan Tobacco International is using a 4 day working week as an incentive to attract workers. At the same time, companies including Fujitsu, Calbee, Mitsubishi Chemical Holdings and Kirin Holdings, have recently made the decision to end "solo assignment" practices which have long been regarded as a crucial step in career progression despite their unpopularity among many workers due to the disruptive effect on families and quality of life. When considered with the criticism that Japan's government has largely ignored solo workers in recent labor reforms - which have focused instead on curbing excessive overtime following several deaths from overwork known as "karoshi" - the signals of a "work as fashion" future do appear to be at play in the choices that workers and employers are making in Japan right now.
Being thoughtful and selective in responding to the needs of workers is necessary but is not by itself sufficient to thrive in a "work as fashion" future. To thrive, requires employers to be deliberate about where to invest in their employer brand and to create a sustainable and differentiated worker-employer relationship that is grounded in a core set of values that do not change, regardless of circumstance or disruption, and are important to both the worker and the employer.
3.2. War between talent:
In a "war between talent" future, workers compete for limited jobs due to an oversupply of talent. The worker-employer relationship is IMPERSONAL: employers view workers as interchangeable and easily replaceable, and workers are more concerned with competing with each other for jobs than with the quality of their relationship with their employer. The "war between talent" future takes a mechanistic, supply-chain view of talent, embracing scientific management to increase economic efficiency and labor productivity.
A combination of high talent supply and low government impact could create the conditions for a "war between talent" future. When there is a high talent supply of qualified workers, employers can easily find and retain workers whose paramount concern is to secure stable employment. High salaries, attractive benefits, investing in the reskilling of workers, and a positive work environment, are less necessary than in a "work as fashion" future. Exacerbated by low government impact where, unlike a "work is work future", labor laws and social safety nets are minimal or absent, and worker protections and government supported training and education for workers are limited, the result could be a free-for-all among employers to see who can take fullest advantage of the government's lack of impact to reduce their labor costs.
Signals that the future could be headed toward "war between talent"
- Organizations put limited investment into developing their talent.
- The amount of gig and fractional work, including ghost work, is growing.
- Organizations' AI and automation initiatives focus on using technology to replace workers.
- Organizations increase their use of offshoring.
- The proportion of people funding education out of their personal resources is increasing.
With the combined effect of the longevity and extent of talent shortages in Japan, and the strong labor protections in place for workers, a "war between talent" future would seem unlikely. The pandemic created a temporary surplus of talent in the Japan labor market with 5.97 million workers losing jobs across the tourism and restaurant industries. However, those workers were quickly redeployed to jobs in other industries, particularly to jobs in supermarkets and grocery stores, and the talent shortage in Japan remains severe with 10% more job openings than job seekers and 35% of the workforce being over 55 years old. The Japan government's strong commitment and investment in digitalization as an important strategy to help mitigate the talent shortage, was evidenced with the budget of ¥1 trillion for digitalization efforts in 2020. The role of robotics is expected to play an increasingly critical role in digitalization efforts, with robotics spend in Japan projected to increase from the ¥1 trillion spend in 2010 to ¥10 trillion in 2035. However, notwithstanding such technology investment and examples of automation being used as a strategy to reduce workforce size, such as Kalm Dairy reducing its workforce by two thirds and moving towards full process automation, the use of automation to replace workers is likely constrained by the labor protections in place in Japan. Therefore, contrary to a "war between talent" future, organizations in Japan are likely to increase investment and focus on the reskilling of talent to perform work in collaboration with technology. The trend of using collaborative robots (cobots) for example, is anticipated to become more deeply embedded into business strategy that focuses on the use of technology to enable and elevate the human capabilities of workers. Mitsubishi Electric has started to deploy cobots alongside its workers to increase production in industries ranging from food and beverage to pharmaceutical. At Nippon Flour Mills, a cobot is used to season packaged foods. And DHL Japan has been rolling out AR-enabled smart glasses to help item pickers optimize their work in the warehouse, reporting 10 to 12 percent improvements in productivity in operations.
While Japan may not expect a "war between talent" future, the strategy to thriving in this future evolves around focusing on improving outcomes instead of reducing costs, adopting strategies that motivate and develop workers, recognizing that workers deliver more value when they are respected and invested in. Even in a market with excess talent supply, investing in workers across the board will produce disproportionately better results. And if these investments include reskilling, it will better prepare employers for the future as well.
3.3. Work is work:
In a "work is work" future, workers and employers view organizational responsibility and personal and social fulfillment as largely separate domains. The relationship between workers and employers is PROFESSIONAL: each depends on the other to fulfill work related needs, but both expect workers to find meaning and purpose largely outside of work. To be clear, workers still care about work in this future and conscientiously do their jobs, and they expect their employer to provide fair compensation, paths to advancement, and learning and growth opportunities. What is less important, is the degree to which workers expect to find work fulfilling.
Low talent supply combined with high government impact could set the stage for a "work is work" future. In today's work environment, the psychological impact of the pandemic and growing evidence that working more than 55 hours a week is a "serious health hazard", finds many workers starting to rethink their relationship to work and their employer. Some workers have realized that their primary need is to increase the distance between their work and "life". And where government impact is high, with government very effectively addressing citizens needs around healthcare, retraining, and even social justice and the "right to disconnect" - things that workers might otherwise expect their employer to provide - it reinforces a sense of detachment between work and "life" by reducing the level of dependence that workers might have on their employers.
Signals that the future could be headed toward "work is work"
- Workers are increasing their use of benefits that enable outside-of-work activities, such as sabbaticals and paid time-off.
- More employers are proactively communicating guardrails around what is acceptable and what is not acceptable work behavior.
- Governments are becoming more active in addressing citizen needs and enacting worker protections.
- Memberships in non-profits and other social impact organizations are increasing.
- Worker participation declines in employer-sponsored non-work focused programs.
The work trends in Japan do not currently suggest a "work is work" future. Even though the Japan government has focused on labor laws and work-style reforms to reduce overtime work, death by overwork ('karoshi') remains a significant societal issue. Illustrating this, staff members of the Cabinet Secretariat's Office for Novel Coronavirus Disease Control logged an average of 122 hours of overtime work in January 2021, far above the 80-hour threshold that is deemed to increase the risk of death from overwork. In 2020, Japan reported 16.7 suicides per 100,000 inhabitants, marking the first increase in the country's suicide rate within the past decade, with over 5,000 of those suicides being attributed to existential worries and problems directly related to work. Many workers in Japan, seeking to increase the distance between work and "life", feel significantly constrained by Japan's business culture where socializing informally after work with colleagues and clients is expected and often the forum for important relationship building and decision making, and is core, whether directly or indirectly, to performance evaluation and career progression opportunities.
While a "work is work" future" may not be expected to be on the immediate horizon in Japan, it is important that employers understand that, to thrive in this future, depends on one paramount factor: motivating workers based on the merits of the work alone. It is the work itself that matters most in strengthening the worker-employer relationship in a "work is work" future. The biggest competitive advantage will accrue to employers that can make work engaging enough to inspire workers to perform at their best to contribute their full potential.
3.4. Purpose unleashed:
In a "purpose unleashed" future, purpose is the dominant force - the north star - driving the relationship between workers and employers. The worker-employer relationship is COMMUNAL: both workers and employers see shared purpose as the foundation of their relationship, viewing it as the most important tie that binds them together. In this future, purpose is so important that it trumps the importance of work itself and shapes everything related to the employment brand, from the organization's ability to attract and retain workers to the extent which workers experience meaning and fulfillment in their employment.
The combined forces of high talent supply and high government impact may create the conditions for a "purpose unleashed" future. When talent supply is high, employers can pick and choose workers not just for skills and capabilities, but also for alignment with the organization's purpose. And an environment with high government impact supports the ability of employers to go "all in" on purpose. When the government deploys funding, resources, and other levers to address weighty issues of importance, it frees employers from obligations that might otherwise have been left for them to address, in turn allowing employers to design their own purpose agenda and pursue it with a singular focus without being distracted by pressures to meet more basic needs. Such high government impact also provides organizations more opportunity to advance their purpose agenda in collaboration with government, further embedding it into everything they do.
Signals that the future could be headed toward "purpose unleashed"
- Workers, customers, regulators, and interest groups are requesting or mandating new purpose-aligned measures from employers.
- Purpose is showing up in job descriptions, hiring practices and performance metrics.
- Organizations are taking stances, internally and externally, on issues they otherwise may have stayed silent about in response to growing demands from workers and customers.
- Strengthening both purpose and business is a stated criterion for leadership positions and driving key executive promotion/succession decisions.
- Increased depth and transparency of reporting on purpose-driven outcomes.
As Japan doubles down on reducing its carbon footprint to achieve carbon neutrality by 2050, Japan's largest B Corp certified organization, Danone, is collaborating with recycling partners and volunteering 50% of its workforce to work closely with local communities to help create a healthier and sustainable planet as part of its purpose of "bringing health through food to as many people as possible". Another purpose driven organization in Japan is Sony Entertainment, where the KPIs and salary of its executives have been aligned to actions focused on reducing climate change and becoming a sustainable business. The efforts of the Japan Business Federation, or Keidanren, to address climate change in Japan, also evidences the nature of business and government collaboration on a shared purpose that a "purpose unleashed" future promotes, with the Federation playing a critical role in supporting government efforts to reduce carbon emissions through proactive initiatives across business communities.
Despite an increasing focus on the importance of purpose, a "purpose unleashed" future would appear unlikely as the talent shortage crisis will inevitably push organizations to prioritize skills and capabilities above alignment with purpose in the worker-employer relationship. Nonetheless, to thrive in a "purpose unleashed" future, organizations have to do more than taking a surface level approach and stance on important societal issues. Purpose must be the core tenant of the worker experience and talent brand. Workers who know that purpose matters, that it guides their employer's attitudes and interactions with them every single day, and that they have a voice not just in providing feedback but in shaping the organization's path forward, will bring the best of their passions to bear on their employer's success.
4. Setting the direction in a world of uncertain futures
The worker-employer relationship has no single future, but only a multitude of possibilities. In Japan, where life-long tenure has historically been core in defining the worker-employer relationship, deeply embedded culture and work practices, such as long working hours, continue to persist despite the government's focus on work-style reforms to reduce overtime work. Though digitalization will inevitably play an increasingly important role in helping organizations in Japan to address the talent supply crisis, the talent supply crisis will not be resolved soon, and it is likely to see organizations place increased focus on flexible working arrangements as an incentive to compete for the attention and approval of workers. If so, and if the current trend continues with majority of workers seeking to change jobs, it might appear a "work as fashion" future would be the likely dominant future. However, it is difficult to think about choosing a future destination when the here and now is tumultuous.
Regardless of the futures we may find ourselves in, or headed towards, there are common fundamental principles - leadership, belonging, meaning, empowerment, the re-architecture of work - that are critical to building a sustained and differentiated worker-employer relationship in any future. The COVID-19 pandemic has created a moment of choice and consequence, where setting a bold destination for all organizational strategies - business, workforce, and social - is vital. The challenge before us now is to choose, with empathy and a deep understanding of what is possible, where that destination lies on both the current horizon and the next, and to navigate toward it with a steady hand.