The ‘new trinity’ reform of labour markets in Japan

ABSTRACT

This paper discusses the ‘new trinity’ reform of labour markets proposed in 2023, which is an integral part of Japan’s New Form of Capitalism. After providing an overview of the reform’s three components – reskilling/upskilling, inter-company mobility, and job-based employment – it discusses how the reform may contribute to reduction of labour shortages, skill shortages, and inequality among workers. It then assesses challenges to this reform, ways to overcome these challenges, and how Japan may hold answers for other countries facing similar labour market problems.

KEYWORDS:

• Employment
• inequality
• Japan
• job-based employment
• labour market mobility
• reskilling

Introduction: continuity and change of Japanese labour market policies

Japanese labour market policies have been incrementally shifting towards re-regulation and worker protection since around 2010. This was a backlash against the country’s neoliberal labour market transition in the previous decades that led to rising inequality and precariousness, alongside economic stagnation. The initial stage of re-regulation was an attempt to increase the number of ‘standard’ employees by setting legal obligations for companies to convert their ‘non-standard’ workers to ‘standard’ workers under certain circumstances, in addition to explicitly banning exploitative practices that became ubiquitous during the early 2000s.¹ The next stage of re-regulation was an attempt to match the work conditions of ‘non-standard’ workers with those of ‘standard’ workers, signified by the ‘work-style reforms’ and associated ‘equal pay for equal work’ policies gradually being enacted since 2017. These re-regulation policies hint at a shift of government priorities from maintaining the integrity of ‘standard’ employment to protecting the rights of individual workers, regardless of their work status, and this approach has been strengthened even more with the recent New Form of Capitalism (referred to as ‘new capitalism’ in this paper) and Integrated Three-Pronged Labor Market Reform (sanmi ittai no rōdōshijyō kaikaku, referred to as the ‘new trinity’ reform in this paper) discussions.

Until the New Form of Capitalism Realization Council (NCRC) meetings, the assumptions behind individual-oriented labour market policy changes seemed to be that the achievement of worker protection and employment stability would depend on the expansion of ‘standard’ employment or equivalent practices. This was reasonable because dualism between ‘standard’ and ‘non-standard’ employment had undoubtedly exacerbated inequality and precariousness among workers. However, in the ‘new capitalism’ and ‘new trinity’ reform discussions, Japanese policymakers, and to some extent Japanese employers, began to view work-style diversity and flexible work arrangements as a possible and necessary means to achieve equality rather than a contributor to inequality.

This paper analyses the unfolding ‘new trinity’ reform of labour markets by reviewing NCRC meeting documents (Appendix A), ‘new trinity’ reform meeting documents (Appendix A), and recent labour market surveys conducted by various Japanese organizations, supplemented by interviews (Appendix B). Figure 1 presents a snapshot of the paper structure with associated section numbers. I will first provide an overview of the ‘new trinity’ reform, which consists of three intertwining components (1). Because these three components are designed to work simultaneously, their contributions have overlaps, but I will discuss each point separately for the sake of clarity (2). The reform’s challenges will be discussed from different actors’ perspectives, and I will also provide suggestions on how to address these challenges to optimize the reform’s contributions (3). I will conclude with a brief discussion of potential implications for other countries facing similar challenges.

Figure 1. Outline of the paper: sections, topics, and their relations.

Source: Author

1. Three components of the ‘new trinity’ reform: an overview

The ‘new trinity’ reform is comprised of three main components, which are reskilling/upskilling, inter-company mobility, and job-based employment. As shown in Figure 1, enactment of one component will require the involvement of the other two, though some aspects of the reform have been more developed than others at this point. In this section, I will first briefly introduce each reform component’s background, aims, and policy plans that have been under discussion.

Reskilling/upskilling may be the most straightforward concept of the three. The motivations behind this component are to provide workers with opportunities for gaining new skills (reskilling) or updating existing skills (upskilling). It aims to help workers to become more employable and competitive in the job market on the one hand, and help employers to acquire workers with desirable skills on the other. So far, the main reskilling/upskilling opportunities have been on-job training (OJT) or company-sponsored programmes in which employees attend training chosen by their employers. Reflecting on these practices, the ‘new trinity’ reform plans to shift government funding from the current 75% company-initiated training and 25% individual-based training, to over 50% individual-based training in the next five years, which will allow workers to choose training options on their own. Several NCRC members have also pointed out that this would give greater opportunities to unemployed workers searching for jobs by providing employable and transferable skills.

Government funding for reskilling/upskilling will be heavily concentrated in areas where employers are experiencing the most severe worker shortages. The ‘new trinity’ reform guidelines (Sanmi-ittai no rōdō shijyō kaikaku no shishin) published on 16 May 2023 identified job fields with ‘high employability’ as ‘IT, data analytics, project management, technological research, sales and marketing, management and planning, tourism and transportation, etc’. In particular, Japan’s projected IT worker shortages, especially of those with ‘creative’ skills rather than ‘maintenance’ skills, has been highlighted by various recent studies (for example, IPA 2022; JHR 2023; Mizuho 2019). In addition to increasing individual-based training, the reform also plans to design new certificate systems for various IT skills, incentivize workers to look for new jobs through reskilling/upskilling (e.g. abolishing unemployment benefit disadvantages for quitting a job after being recently trained), offer consultancy services to help workers with these transitions, promote side-jobs as an effective means to develop new skills, and collaborate with universities to increase students with specialized skills who can become ‘immediate assets’ (instead of long-term ‘members’) to the company.

The ’new trinity’ reform objectives are to not only increase workers with ‘highly employable’ skills, but to ‘smoothly transfer’ them to industries and positions that are rapidly growing in demand, which is the second reform component: inter-company mobility. One of the plans under discussion is unemployment and retirement benefit reform. Policymakers have focused on relaxing conditions upon which workers receive unemployment pay, in particular, terminating the differentiation between workers who are laid off and workers who quit the job. (Under the current unemployment systems, while the former can receive unemployment benefits immediately, the latter need to wait for two or three months.) Another reform being discussed is the abolition of retirement tax systems favouring workers who have stayed with a company for 20 years or more, and to expand portable retirement (pension) plans, instead of company-specific plans.

So far, inter-company mobility has been most active among ‘non-standard’ workers and those who work at small businesses, or those with highly sought-after skills. By lowering incentives for workers to commit to an employer long-term, policymakers hope to stimulate greater mobility of ‘standard’ workers. However, as pointed out by various Japanese scholars, the disconnect between internal labour markets (concerning ‘standard’ employment) and external labour markets (concerning ‘non-standard’ employment), in addition to the stronger institutionalization of the former than the latter, have made it difficult for ‘standard’ workers to change employers without losing certain earnings or benefits (for example, Inoki and Higuchi 1995; Saguchi 2018; Sugeno 2004; Tsuru, Higuchi, and Mizumachi 2011). The Grand Design and Action Plan for a New Form of Capitalism (2023) points out that due to this disconnect, Japanese workers who change jobs mid-career tend to start with lower wages at their new jobs than their previous jobs, but the new policy will aim for more workers to secure immediate wage increases after a mid-career job change by attempting to ‘seamlessly connect internal and external labour markets’.

The development of job intermediation services has become a key policy focus for labour market mobility. For example, the ‘new trinity’ reform suggests information-sharing among Hello Work (public employment security agencies), private employment agencies (such as Recruit, Persol, and Pasona), and certified career consultants regarding numbers of jobs posted, their projected wages, and required skills. So far, the operation of these organizations has been independent for the most part because they have been separately building databases that target different industries, worker groups, and locations. However, by curating employment information into one system, policymakers are hoping to achieve a government-led ‘data-based’ career consulting service modelled after Denmark’s ‘flexi-security’ (Cabinet Secretariat 2022b). The reform also encourages side-jobs and associated job matching services. It cites overseas data (for example, Panos, Pouliakas, and Zangelidis 2014; Raffiee and Feng 2014) to show the benefits of holding side-jobs, including higher likelihood of starting up a business, lower likelihood of failing a start-up business, and lower likelihood of becoming unemployed, in addition to other more obvious benefits such as workers gaining higher income and new skills. Although all of these benefits align with the ‘new capitalism’ objectives, more conflicting motivations can be observed from employers’ and workers’ perspectives, which will be discussed later in this paper.

The third component, job-based employment, may seem simple but has been the least developed of all three policy components. It is a practice of hiring and paying workers based on the specific functions they are expected to perform, in contrast to so-called ‘membership-based’ employment relating to seniority-based wages. The ‘new trinity’ reform guidelines so far have merely presented case studies of various companies introducing job-based internal management (with Hitachi as the top example), which are to be referred to by individual companies for developing their own versions. Examples include drafting specific job descriptions, introducing skill-needs analysis and reskilling, developing certification systems, re-designing wage systems modelled after overseas job-based pay grade systems, creating an internal ‘matchmaking’ platform or agent through which workers can apply to other positions within the company, changing internal re-allocation patterns that focus on workers improving specialized skills instead of broadly experiencing all aspects of the company functions, and so on.

Although detailed plans are still at a rudimentary stage, the ultimate goal of this job-based employment reform has been consistent and clear in all policy documents, which is to achieve ‘structural wage increases’. In fact, during the early NCRC meetings, ‘structural wage increases’ was mentioned as the third component of labour market reforms, but was later replaced by ‘job-based employment’. For employers, a shift from ‘membership-based’ to ‘job-based’ employment will supposedly involve a comprehensive re-designing of existing internal labour market systems. Building institutions that connect these changes with reskilling/upskilling and inter-company mobility will be essential for the government – and other actors such as businesses, universities, labour unions, and employment agencies – to achieve the ‘new capitalism’ and ‘new trinity’ reform goals. I will further discuss the ideal outcomes of the reform in the next section.

2. Potential contributions of the ‘new trinity’ reform

If executed effectively, the ‘new trinity’ reform can potentially contribute to the reduction of Japan’s labour shortages (i.e. overall workforce decline), skill shortages (i.e. lack of highly-skilled workers), and inequality (i.e. gaps between ‘standard’ and ‘non-standard’ workers). The reform’s contribution to the first point, tackling labour shortages, may be the most indirect policy outcome of all, and in this section I will first point out how the reform can potentially expand worker supply and productivity in Japan. Then, I will briefly discuss ways the reform may contribute to the reduction of skill shortages and inequality.

2.1 Quantitatively expanding labour markets

Japan is trying to prevent workforce shrinkage by incorporating different worker demographics, one of which being foreign workers. The 2018 amendment of the Immigration Control and Refugee Recognition Act is viewed as the first step towards gradually opening a ‘front door’ to welcome foreign workers (Miyajima et al. 2019; Yamaguchi 2020), and this ‘opening-up’ attitude is reflected in the ‘new capitalism’ policies. For example, the revised Grand Design and Action Plan for a New Form of Capitalism (2023) stresses the importance of applying the ‘equal pay for equal work’ policies to foreign workers, attracting ‘highly-skilled’ foreign workers (especially in the field of digital and green transformation), increasing foreign students along with their employment opportunities after graduating, expanding visa support for foreign investors and entrepreneurs, nurturing and retaining foreign workers by revising the Technical Intern Training Programme,² and promoting cultural, educational, and business exchanges with foreign countries (detailed in MLIT 2023).

To this end, the ‘new trinity’ reform may help to attract more foreign workers by promoting job-based employment practices that better match the so-called ‘global standard’ (i.e. employment systems that are more clear and familiar to foreign workers), as adjustment difficulty to Japan’s ‘membership-based’ practices has been one of the biggest obstacles to hiring and retaining ‘standard’ foreign workers (for example, Igarashi 2015; Oishi 2012; Watanabe 2013). In addition, Japanese companies may be losing their relative appeal compared to other rapidly growing economies, exemplified by the decrease of Chinese workers coming to Japan (interview I; see also Iguchi 2016). Achieving the reform’s goal of ‘structural wage increases’, as well as encouraging the development of ‘new and exciting’ businesses, may make working in Japan more attractive to foreign workers overall (interviews I, K).

The second possibility of quantitatively expanding labour markets is to increase the participation of domestic workers, particularly elderly and female workers. The 2013 amendment of the Act on Stabilization of Employment of Elderly Persons required employers to continue employing workers until 65 years old,³ and the 2021 ‘work-style reform’ obligated employers to make efforts to extend this to 70 years old. However, various recent studies have indicated that although the employment of the elderly is increasing, many older workers are subject to inferior wages and welfare compared to their pre-retirement conditions (for example, Yamada 2009; Moriyama and Yamagishi 2020; MHLW 2022; interview C). The ‘new trinity’ reform may help bridge the wage gap between pre-retirement and re-employment by reinforcing ‘equal pay for equal work’ policies and promoting job-based employment relations that place less importance on seniority or ‘standard’ employment status.

In addition, because the gap between pre-retirement and re-employment conditions is attributed to the mismatch between the employees’ willingness to continue working and employers’ unwillingness to re-employ them (Yamada 2009; interviews F, H), the ‘new trinity’ reform’s promotion of inter-company mobility may make it easier for retired workers to switch to an employer that is willing to offer better employment conditions. More specifically, the ‘matchmaking’ between retired workers and new employers may be promoted through the expansion of job intermediation services suggested by the reform. This trend can already be seen in private employment agency services. In fact, job intermediation services for ‘high-income, mid-career’ job changes have been one of the fastest growing business fields since 2010 for Recruit and many other private employment agencies, including services specifically designed for employers recruiting retired workers (Kurosawa 2022; interviews A, D).

Another domestic worker pool that has been expanding in Japan is female workers. On a macro level, there has been a greater number of ‘non-standard’ female workers than ‘standard’ female workers, but at the same time, overall female labour market participation has been increasing, and since around 2015, the increase in ‘standard’ employment has been more significant among females than males (Labour Force Survey 2009–22). On a micro level, according to the Ministry of Health, Labour and Welfare (MHLW 2023c), what it referred to as ‘reluctant (fuhon-i) non-standard’ employment (i.e. those who work ‘non-standard’ jobs because they could not find ‘standard’ positions) has decreased among female workers, from 14.7% in 2013 to 7.7% in 2022,⁴ and the most common reasons for choosing ‘non-standard’ employment for female workers were personal reasons such as the need for flexible work time, specific work location, utilization of particular skills, and balancing with housekeeping duties. However, other studies have also revealed increased dissatisfaction among part-time female workers due to their lack of wage increase and promotion opportunities, despite the fact that part-time workers have been taking on more and more roles similar to ‘standard’ workers (Honda 2010; MHLW 2021).

The above trends suggest that it has become relatively easier for female workers to find ‘standard’ employment positions, and that many ‘non-standard’ female workers would want to become ‘standard’ workers if their personal or family situations allowed, but a major obstacle that keeps them from doing so is that the current ‘standard’ employment systems lack work time flexibility and job specificity. Ideally, the ‘new trinity’ reform will not only reduce the ‘standard’-‘non-standard’ gap experienced by female workers, but also contribute to the increase of ‘standard’ female employment by promoting job-based employment and ‘diversified (tayō-na) standard’ employment⁵ that offers work time flexibility and job specificity. In addition, ‘structural wage increases’ through the reform may provide justification for female workers who are currently making work adjustments to earn below so-called ‘annual income walls’ (nenshū no kabe)⁶ to work past such limitations and increase their participation in the labour market (cf. Nagase 2024 in this collection).

Lastly, there are other ways the ‘new trinity’ reform attempts to address labour shortage problems. The reform documents cite studies on the correlation between income increase and higher likelihood of marriage and having children, supporting the government’s intention to quantitatively expand labour markets in the long run by an increased birth rate achieved through ‘structural wage increases’. It also hints at the idea of increasing per-worker workload as a solution to labour shortages, for example, by promoting side-jobs, increasing female work hours beyond ‘annual income walls’, and introducing job-based systems that can better adjust overall to companies’ work load fluctuations and reduce workers’ inactive periods. A worker’s unemployment period is also viewed as ‘wasteful’ and hence a target of reduction (interview J). Prior to the reform, the government focused on training the unemployed to help them find their next job, but the ‘new trinity’ reform discusses the possibility of providing reskilling and upskilling for potential job changers during the employment period. It also suggests the abolition of unemployment benefit disadvantages for workers who voluntarily quit their job if they have participated in such training programmes in the past year. These discussions are closely related to Japan’s second labour market challenge, skill shortages, which I will discuss next.

2.2 Adjusting to new skill demands

While the ‘new trinity’ reform’s contributions to solving labour shortages may be indirect for the most part, the reform more directly addresses Japan’s need for skill upgrading. The increased government support for reskilling/upskilling, reflecting the ‘new capitalism’ and ‘new trinity’ reform visions, can be seen in the various programmes and budgets announced by the Ministry of Health, Labour and Welfare (MHLW), Ministry of Education, Culture, Sports, Science and Technology (MEXT), and Ministry of Economy, Trade and Industry (METI) since 2022. In their 2023 budget reports, ‘promotion of new trinity reforms’ and ‘realisation of structural wage increases’ became one of the five major policy categories for MHLW (2023a) and MEXT (2023) respectively, and over a hundred billion JPY was allocated by METI (2023) for projects relating to ‘human capital development’.

The resulting government-sponsored reskilling/upskilling programmes will all support the increase of individual-based training opportunities for workers to attain high-demand skills, and ideally for them to transfer out of declining industries into growing industries. Whether or not these budgets are enough or will be spent effectively remains to be seen (cf. Akai 2024 and Nakata 2024, in this volume). It is also questionable whether or not these government initiatives will motivate employers and workers to proactively participate, which will be discussed later in this paper.

According to the Japan Association of Human Resource Services Industry (JHR 2023), workers who experienced the highest wage increases after job changes were those who had ‘proactive’ career changes aimed at developing new skills and career paths. This study supports the possibility that the three components of the ‘new trinity’ reform can simultaneously increase wages for workers on one hand, and meet employer demands for skilled workers on the other. Although the third component, job-based employment, is discussed mostly at the individual company level so far, a successful enactment may incrementally lead towards a standardized job-based market across the industry, and ultimately an institutional merging of ‘standard’ and ‘non-standard’ employment relations that emphasize individual skills rather than company membership. The next sub-section will discuss possible ways the ‘new trinity’ reform may contribute to a reduction of the division between ‘standard’ and ‘non-standard’ employment, and between internal and external labour markets.

2.3 Filling gaps between ‘standard’ and ‘non-standard’ employment

There are three possible ways the ‘new trinity’ reform may achieve greater equality between ‘standard’ and ‘non-standard’ workers. The first is to match the work conditions of ‘non-standard’ employment to that of ‘standard’ employment, as is being encouraged by the current ‘equal pay for equal work’ policies. One of the biggest obstacles to this approach is the fact that under existing employment systems, it is difficult for employers to develop objective ways to compare the detailed job descriptions and skills of ‘non-standard’ workers with those of ‘standard’ workers, resulting in employers often opting for individual wage negotiation instead of wage-matching when hiring ‘non-standard’ workers (JILPT 2022).⁷

The 14^th NCRC meeting document produced by the Cabinet Secretariat (2023a) cited MHLW studies and estimated that in 2021, the per-hour wage gap between ‘standard’ and ‘non-standard’ workers performing similar functions was 602 yen, and opined that it was unclear whether or not this gap is reasonable. On the one hand, ‘standard’ employment relations imply higher levels of responsibility, likelihood of working overtime, and commitment to the employer; on the other hand, as discussed earlier, dissatisfaction among ‘non-standard’ workers has increased because their roles have been expanding towards those of ‘standard’ workers, while the wage and welfare standards remain unchanged. Although raising the wage and welfare conditions of ‘non-standard’ workers to the comparable level of ‘standard’ workers may keep rising inequality at bay temporarily, more fundamental institutional changes may be required in the long run.

The second possible way to narrow the ‘standard’-‘non-standard’ gap is by connecting internal and external labour markets through the introduction of universal job-based employment systems. This path seems to be what policymakers initially intended to achieve during the drafting period of the ‘new trinity’ reform guidelines. However, as policymakers collected data on individual companies’ human resource management practices, it became clear that a complete abolition of ‘standard’ employment systems is not feasible anytime soon because every company has established internal employment systems unique to its vision, industry, required skills, and so on, which cannot be easily matched with other company practices.

Reflecting this reality, more recent reform discussions have gradually shifted towards ‘strengthening and expanding internal labour markets’, which is the third way of potentially shrinking job-type-based inequality. Although this policy idea is still at a rudimentary stage, existing studies of company groups and networks in Japan, such as ‘intermediary labour markets’ (Hirano and Enatsu 2018; Itami 1987) or ‘quasi-internal labour markets’ (Inagami and Whittaker 2005), may be useful for conceptualizing this transition. The first step would be to gradually introduce internal job-based employment by establishing job descriptions, wage grades, training programmes, certification systems, and internal hiring departments in charge of ‘matchmaking’ workers and open positions to promote within-company mobility. The next step would be to expand this system to group companies, subsidiaries, overseas offices, and other affiliated organizations. The ‘new trinity’ reform documents frequently refer to Hitachi’s example, which is currently at this second step, pointing out that incrementally expanding company participation in these practices may eventually lead to an entire labour market shift towards job-based employment. However, almost all the other company examples mentioned during reform meetings are still at the first stage, and most smaller companies have made no move towards job-based employment because they have no clear guidelines or incentives. This leads to the next point of discussion, on the ‘new trinity’ reform’s challenges and its need to incorporate employers’ and workers’ perspectives.

3. Challenges of the ‘new trinity’ reform

Having discussed the potential outcomes of the ‘new trinity’ reform, this section turns to the reform’s obstacles, and how Japan may overcome them and realize the ‘new capitalism’ goal of a ‘virtuous cycle of growth and distribution’. The central discussion of the reform seems to be focused on creating labour markets in which workers have equal access to career advancement and skill development opportunities, and, as discussed earlier, this emphasis on individual workers can be seen as a push back against Japan’s earlier neoliberal policies. However, although protecting individual workers’ rights is certainly important, the reform plans so far seem to lack realistic input from employers, as well as from workers to some extent, in addition to clear timelines for achieving various levels of reform goals.

To list some questions that the policymakers have not yet fully addressed, Why should employers allow side-jobs and individual training that encourage leaving, and abolish retirement plans that favour long-term, loyal employees? How do employers assess equality between ‘standard’ and ‘non-standard’ workers when they have different responsibilities and expectations? How do employees decide what skills to develop without guidance from employers? What are the milestones and end goals of the ‘new trinity’ reform? To address these questions, I will focus on three challenges in this section: understanding employers’ perspectives, understanding workers’ mindsets, and lack of clarity between short-term and long-term goals.

3.1 Considerations from employers’ perspectives

An example of a disconnect between government and employer viewpoints can be found in the discussion of side-jobs. In 2021, over 40% of large employers explicitly prohibited side-jobs, and had no intention of accepting any side-job workers in the near future, even though the MHLW had been clearly encouraging them since 2018 by incorporating them into the MHLW ‘model’ office guidance (Cabinet Secretariat 2022a; Persol 2021). The ratio of side-job prohibition was generally lower among small and medium-sized enterprises (SMEs), but this is likely for non-proactive reasons such as the result of SMEs having more difficulties recruiting and retaining workers, rather than SMEs more actively promoting them for employees’ skill and career development.

Similar concerns can be noted regarding the reform’s planned changes to training, unemployment, and retirement policies discussed above, which all add monetary and administrative burdens to employers directly and indirectly, but provide few clear incentives for them to make such changes. The reform papers so far suggest population ageing, worker shortages, and skill shortages as universal justifications for all policy changes. However, for many employers, especially large employers that can still attract enough workers at least in the short term, these reasons are probably insufficient to actively support the reforms right away.

In contrast, pressure to attract workers is growing, especially among SMEs and in industries that require engineers and so-called ‘essential workers’.⁸ Various studies have indicated SMEs’ preference for hiring ‘standard’ employees, their difficulties in attracting new graduates, and their reluctant reliance on the higher ratio of mid-career hires and ‘non-standard’ workers (for example, MHLW 2019; Recruit Works Institute 2015–23; Survey on Employment Trends 2012–23; interviews B, C, D). The ratio of ‘standard’ workers hired mid-career, as well as ‘non-standard’ workers, is also high for ‘essential workers’ because of the industries’ relatively inferior work conditions compared to white-collar jobs (ILO 2023), but the ‘new trinity’ reform does not seem to pay enough attention to them despite their crucial socioeconomic roles.

The challenges for recruiting engineers are not only a matter of labour shortages but skill shortages as well. The ‘new trinity’ reform seems to more directly tackle this issue by promoting reskilling/upskilling. An engineer dispatching agency manager informed me that they had no choice but to provide comprehensive training programmes for their employees, because that was the only way they could attract and maintain enough skilled workers, and even though many workers leave the company after gaining competitive skills, all they could do was strive to be an attractive employer (interview B). Not limited to engineering companies, this may become the case for all employers after the full realization of the ‘new trinity’ reform.

As discussed above, of the three reform components, policymakers have been especially struggling to crystallize the concept of ‘job-based’ employment, which directly challenges persisting ‘membership-based’ institutions. With the exception of those with overseas backgrounds, managers in Japan have little to no experience with job-based employment systems, nor clear ideas about how to design them. A policymaker who has been involved in the ‘new trinity’ reform informed me that because most reform committee members have extensive overseas experience, they have no trouble imagining a shift towards job-based labour market systems, but the initial policy announcements caused great confusion among Japanese managers because they interpreted ‘job-based’ employment in many different ways (interview J). Efforts to adjust to this reality can be seen in policy document wording changes throughout 2022 and 2023, from pursuing ‘structural wage increases’ to general ‘job-based employment’ to ‘introducing job-based wages according to individual company situations’. They also changed the Japanese language for ‘job-based’, from a relatively new term jobu-gata back to an older term more familiar to Japanese managers: shokumu-kyū (wage systems according to a worker’s duties).

The abovementioned policymaker also said that the government is currently collecting company case studies to be reflected in updated draft policies regarding unemployment (and possibly retirement) reforms, which will be soon published. In addition, the documents prepared for the 22nd NCRC meeting (held on 27 September 2023) mentioned that the government would come up with a conclusion regarding reskilling/upskilling support and unemployment reforms (that favour those who recently underwent training) by the end of 2023. However, it is likely that updates on retirement reforms will take longer, as no documents have mentioned specific dates, and job-based employment reform will take even longer, as policymakers need to continue studying employers’ specific cases.

3.2 Considerations from the worker perspective

The main ‘new trinity’ reform policy goals seem to be built upon an assumption that workers are motivated for career development and will actively seek reskilling/upskilling and job change opportunities. In reality, however, few workers place heavy importance on career planning when choosing jobs. Various studies have shown that wage, welfare, co-worker relations, work hours, and work type (‘standard’ or ‘non-standard’) take priority over career paths for most workers; they are not motivated or clear about career paths at all, let alone do they actively seek training opportunities (for example, Cabinet Office 2023; ManpowerGroup 2023). According to a policymaker I interviewed (J), the reform committee members were all ‘special’ in the sense that they have proactively pursued their career and skill development, and may not realize that most Japanese workers do not possess such clear career visions and high levels of motivation.

This disconnect from workers’ reality might be partly due to the lack of labour union influence during the reform discussions. Throughout NCRC and ‘new trinity’ meetings (Appendix A), labour union representatives seemed agreeable to the overall reform plans. Although they have expressed concerns about labour mobility threatening job security, they did not change policy outcomes. Concerns of a possible lack of worker motivation to reskill/upskill were only brought up at the ‘new trinity’ reform subcommittee meeting after the reform plans had already been announced.

In order to fully reach the ‘new trinity’ reform goals, it is necessary to better understand workers’ attitudes towards work, and provide guidance according to their diverse motivations. In addition to labour unions, increased school participation is also crucial. During the ‘new trinity’ reform meetings, several policymakers brought up the need for education reform that would help develop career-oriented ways of thinking at a young age, but these views have not yet been reflected in policy outputs. Of all the reform meeting attendees so far, the push for incorporating ‘career education’ at schools has been the strongest from employment agencies, in particular Recruit and Parsol, which have already been providing ‘career education’ products and services on a small scale. Meeting attendees representing large employers seem to be more keen on shifting workers’ mindsets while at the workplace from membership-based to job-based, although as above studies suggest, this may not be early enough.

Nurturing a career mindset that is suitable for flexible labour markets and job-based employment practices will require long-term planning and coordination among a broad range of stakeholders. In the meantime, workers would benefit from the ‘new trinity’ reform’s suggested plans to develop personalized ‘career consulting’ services that inform workers of current and future labour market needs, and offer realistic training options to achieve wage increases. In 2022, there were about 64,000 certified career consultants, with the largest number working at corporations (Cabinet Secretariat 2023a), but career consultants at public and private employment agencies, as well as universities, are more likely to support unemployed individuals and promote inter-company mobility.

3.3 Organising short-, mid-, and long-term objectives

As mentioned throughout this paper, some reform plans seem attainable within the next year, while others will require long-term institutional change over the course of decades. The ‘new trinity’ reform documents are unclear about these timelines, but organizing Japan’s short-, mid-, and long-term labour market problems and potential ways to address them may help future development of detailed reform policies and desirable labour market outcomes. Table 1 is a suggestion for how a timeline could be organized, which I hope will trigger further discussion about Japan’s future labour markets and economy. As shown in the table, most of the imminent problems may be addressed by enhancing existing policies such as ‘work-style reform’, immigration policies, and retirement policies. In terms of labour market change, the strength of the ‘new trinity’ reform may be in mid-term plans, and the ‘new capitalism’ reform in long-term plans.

Table 1. Suggestions for how to organize reform timelines.

	Problems	Potential solutions	Examples of detailed plans discussed in this paper
Imminent	Labour shortages, particularly of ‘essential workers’.	Quantitatively expanding labour markets.	Deregulating restrictions on foreign workers; Extending the retirement age.
		Increasing workload and productivity per-worker.	Permitting side-jobs; Increasing job-based assignments to reduce worker down time; Increasing part-timers’ work hours by abolishing ‘annual income walls’; Enhancing ‘equal pay for equal work’ to improve the conditions of ‘non-standard’ workers.
Mid-term	Skill shortages.	Promoting reskilling/upskilling.	Shifting from employer-oriented training to individual-oriented training; Creating certification systems for desirable skills; Supporting consultation services for skill development analysis.
		Encouraging worker mobility from declining to growing industries.	Enacting unemployment and retirement reforms that remove disadvantages for workers changing jobs; Developing job intermediation services.
Long-term	Greater worker shortages induced by population ageing and decline.	Improving birth rates to increase young population.	Realising ‘structural wage increases’.
	Widening inequality.	Merging ‘standard’ and ‘non-standard’ employment.	Gradually changing employment practices, possibly through the expansion of internal and ‘middle’/’quasi-internal’ labour markets.
	Low labour productivity.	Virtuous cycle of growth and distribution.	Achieving ‘new capitalism’ reforms; Achieving education reforms to nurture career-oriented mindsets; Continuing ‘structural wage increases’.

Source: Author.

Conclusion and further discussion: does Japan hold answers?

Optimistically speaking, the three intertwining components of the reform (reskilling/upskilling, inter-company mobility, and job-based employment) can contribute to the reduction of Japan’s labour shortages, skill shortages, and inequality between ‘standard’ and ‘non-standard’ workers, although considerations from employers’ and workers’ perspectives, as well as clearer reform timelines, are much needed. As concluding remarks, I will briefly discuss how Japan’s reform plans may provide implications for other countries, which is a consideration of this volume.

The most direct lessons the ‘new trinity’ reform can provide are its approaches to addressing labour shortages and skill shortages. Regarding labour shortages, although Japan has been gradually expanding its foreign workforce, its immigration policies are stricter than many countries that are also facing population ageing and labour shortages. Japan’s attempts to quantitatively expand labour markets by increasing domestic worker pools while reducing their unproductive time, either on the job or due to unemployment, may provide implications for other countries facing similar demographic challenges, especially those facing a ‘backlash’ against globalization and ever-rising immigration (Leonhardt 2023). Even for countries not facing imminent labour shortages, many are, or will, face skill shortages along with industrial and technological development. Japan’s new reform plans most directly tackle this problem, and will likely provide implications for both policies and practices regarding reskilling/upskilling and worker mobility towards new and growing industries.

I would like to point out a specific labour market actor that may be a key player in upcoming labour market changes, which is employment agencies (or the human resource service industry). As discussed in this paper, some of the biggest challenges to the reform are the disconnects between internal and external labour markets, and among government, employers, and workers. Employment agencies have traditionally served as the connector between workers and employers through job advertising and intermediation, and in recent years, have been expanding their services for government-sponsored re-employment programmes, consultancy for human resource management strategies, and training and seminar programmes (Zou 2023). All these roles of employment agencies will contribute to the implementation of the ‘new trinity’ reform by providing an alternative but realistic option to better connect government, employers, and workers, while bridging internal and external labour markets.

One of the most unique characteristics of employment agencies in Japan compared to other countries is attentiveness to individual workers, jokingly referred to by some agency managers as being ‘nosey’ (osekkai) (interviews A, E, K). Unlike employment agencies in other countries, which tend to focus on serving client companies, Japanese employment agencies have a stronger tendency to help individual workers with finding jobs. For example, they personally meet all individuals registered with job intermediary services and help them with CVs and job interviews. These existing practices can be expanded to formal ‘career consulting’ services, which help individual workers make career and skill development plans, while making use of database-sharing suggested by the reform to analyse broader market needs and trends. According to a manager at Recruit who had been involved in starting up various major projects, this is exactly the direction she hopes Japanese employment agencies are heading towards (interview K). This means that they will not only continue to enhance the flexibilization of labour markets, but may also serve as guardians and mentors for workers. Such practices may provide practical implications for human resource service industries in other countries.

The ‘new capitalism’ goals align with the global trends of ‘care economy’, ‘green enterprises’, and ‘just transition’ (which combines sustainable development with human rights), in the sense that they all stress the simultaneous achievement of sustainability and equality in economic development. The ‘new trinity’ reform may be able to add a third dimension to this development goal, which is flexibility. Postwar labour market evolution has shown that the ‘flexibilization’ of labour markets, in association with the rise of ‘non-standard’ employment, led to greater inequality and precariousness among workers. However, the ‘new trinity’ reform is designed to achieve these traditionally conflicting labour market outcomes (employment stability, flexibility, and equality) at the same time. As shown in this paper, although there are certainly challenges and the details of this reform are not yet crystallized, realization of the ‘new trinity’ reform may improve Japan’s economy and quality of life, and possibly provide other countries with a positive example of how the coexistence of sustainability, flexibility, and equality may be attained.

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No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Fangmiao Zou

Fangmiao Zou obtained a DPhil in Area Studies (Japan) at University of Oxford, and is currently a Research and Teaching Associate of Japanese economy and business at the Nissan Institute of Japanese Studies, University of Oxford.

Notes

1. For example, the 2012 Labour Contract Law and the 2015 amendment of Labour Dispatching Law specified conditions in which employers were obligated to convert fixed-term workers and dispatched workers to full-time workers respectively. Also, various rampant ‘grey zone’ labour dispatching and subcontracting practices during the early 2000s, in addition to a large number of ‘non-standard’ worker dismissals after the 2008 global financial crisis, resulted in prohibition of these exploitative practices.

2. A full draft of revised policy was published on 18 October 2023. See ISA (2023).

3. It gave employers options to (1) continue the ‘regular’ employment relations until 65 years old, (2) keep the retirement age of 60 years old, but re-employ retired workers until 65 years old, or (3) abolish retirement age altogether.

4. The ratio of ‘reluctant non-standard’ male workers has been higher but is also decreasing, from 31.1% in 2013 to 16.8% in 2022.

5. ‘Diversified standard’ employment systems allow one or more of the following for ‘standard’ workers: shorter work hours, specific work location, and specific job function.

6. Many female workers in Japan adjust their workload to be under certain annual income caps for tax exemption, spousal deduction, or healthcare enrolment. On 27 September 2023, the Ministry of Health, Labour and Welfare published tentative plans to address ‘annual income walls’ (MHLW 2023b; Nagase 2024 in this collection).

7. ‘Equal pay for equal work’ regulations require employers to match ‘non-regular’ workers’ wages with those of ‘regular’ workers based on job content, or alternatively, to allow the option of reaching wage agreements by negotiating with individual workers.

8. They are also referred to as ‘key workers’/‘critical workers’, and their importance was realized during COVID-19 (ILO 2023).

Appendix A.

List of New Form of Capitalism Realization Council meeting topics

The following lists the New Form of Capitalism Realization Council (NCRC) meeting dates and topics. Topics particularly relevant to this paper are highlighted in bold. The NCRC meeting documents are available at the Cabinet Secretariat website: https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/index.html (accessed 21 January 2024). Documents from the ‘new trinity’ reform subcommittee meetings (also highlighted in bold) are also available at the Cabinet Secretariat website: https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/bunkakai/index.html (accessed 21 January 2024).

Table

	Date	Topic(s)
1	26/10/2021	Japan’s New form of Capitalism visions and its realizations
2	8/11/2021	Urgent Proposal: Pioneering the future with ‘new capitalism’ (draft)
3	26/11/2021	Wage and human capital
4	8/3/2022	Science and technology
5	12/4/2022	1. Rebuilding post-pandemic economic systems 2. Visualising non-financial information towards ‘new capitalism’
6	28/4/2022	1. Multipolarization of economy and society 2. Public roles of private businesses
7	20/5/2022	1. Human capital investment (wages, training, side-jobs, gender inequality, etc.) 2. Fair exchanges, advocacy by Fair Trade Commission
8	31/5/2022	Grand Design and Action Plan for a New Form of Capitalism (draft)
9	7/6/2022	1. Grand Design and Action Plan for a New Form of Capitalism (draft) 2. Basic Policy on Economic and Fiscal Management and Reform 2022 (draft)
10	4/10/2022	1. Important economic measures for enacting Grand Design and Action Plan for a New Form of Capitalism (draft) 2. Strengthening support for SMEs along with general and minimum wage increases
11	26/10/2022	Presentation and discussion by Rebecca Henderson: Reimagining Capitalism
12	10/11/2022	Smooth inter-company labour mobility, re-skilling, structural wage increases
13	28/11/2022	Startup Development Five-year Plan, Doubling Asset-based Income Plan
14	15/2/2023	Re-skilling, labour mobility, structural wage increases
15	29/3/2023	Follow-up: Grand Design and Action Plan for a New Form of Capitalism
16	12/4/2023	Integrated Three-Pronged Labor Market Reforms (*This is the government’s provisional translation of what is referred to in this paper as ‘new trinity’ reforms)
17	25/4/2023	1. Additional considerations for science, technology, and innovation 2. Smooth company entry/exit for GX and DX
	26/4/2023	First ‘new trinity’ reform subcommittee meeting (drafting guidelines)
18	16/5/2023	Guidelines for Integrated Three-Pronged Labor Market Reforms (draft)
19	6/6/2023	Revisions for Grand Design and Action Plan for a New Form of Capitalism
20	16/6/2023	1. Grand Design and Action Plan for a New Form of Capitalism (2023 revision draft) 2. Basic Policy on Economic and Fiscal Management and Reform 2023 (draft)
21	31/8/2023	Ways to move towards a virtuous cycle of growth and distribution, including wage and investment
22	27/9/2023	Promotion of New form of Capitalism (draft)
23	25/10/2023	1. Strengthening the supply side (labour reduction investment, employment of the elderly, re-skilling, etc.) 2. Promoting ‘content’ industry (anime, games, manga, movies, music, broadcasting, etc.)
	16/11/2023	Second ‘new trinity’ reform subcommittee meeting (case study)
	14/12/2023	Third ‘new trinity’ reform subcommittee meeting (case study)
	18/12/2023	Fourth ‘new trinity’ reform subcommittee meeting (case study)
	15/1/2024	Fifth ‘new trinity’ reform subcommittee meeting (case study)

Appendix B.

List of interviews

The following lists the interviews mentioned in this paper. They were all semi-structured ‘elite’ interviews that lasted between one and two hours. Interviews with employment agencies were centred around their business development, and interviews with other companies were centred around changes in their human resource strategies and practices. Interviews in 2019 were conducted in-person in Japan as part of my DPhil fieldwork research. Interviews in 2023 were conducted remotely and specifically for the purpose of this paper.

Table

	Date(s)	Industry/company	Interviewee’s title
A	5/4/2019, 28/5/2019	Employment agency	Business development manager
B	18/4/2019	Engineer dispatching agency	HR manager
C	22/4/2019, 29/5/2019	Employment agency	Consultant
D	24/4/2019	Consulting company	HR manager
E	9/5/2019, 13/6/2019	Employment agency	Chief editor of job magazines
F	15/5/2019	Insurance company	HR manager
G	22/5/2019	Engineering company	HR manager
H	27/5/2019	Advertising company	HR manager
I	31/5/2019	Employment agency	Consultant
J	2/10/2023	Member of the ‘new trinity’ reform subcommittee
K	3/10/2023	Employment agency	Head of research centre