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Low IT pay stifles Japan’s digital transformation

  • June 12, 2022
  • , Nikkei Asia
  • English Press

MOTOKAZU MATSUI, Nikkei staff writer

 

TOKYO — Japanese companies face a serious shortage of skilled tech professionals as rigid seniority systems prevent them offering the kind of pay and packages likely to lure younger IT engineers and other experts.

 

Data from a major Japanese staffing agency shows that the so-called jobs-to-applicants ratio for IT professionals reached 10 late last year, higher than any other role and underscoring the size of the tech recruiting challenge confronting the country.

 

Unlike the U.S. and Europe, where firms often spend big to tempt talent, many companies in Japan still set wages based heavily on criteria such as how long employees have been with the firm.

 

This lack of fresh tech blood is dragging on widely-touted government plans for the “digital transformation” of society, with the recent COVID-19 pandemic highlighting how many of the nation’s industries still rely on outdated technology or even pen and paper.

 

“The war for talent is heating up,” said Atsuko Hirose, head of human resources at software developer Fujisoft. The Yokohama-based company aims to hire about 430 midcareer IT experts in the 2022 fiscal year — roughly the same as the number of science and technology college graduates it expects to recruit next spring. But that won’t be easy given the shallow pool of job seekers in the tech sector.

 

The monthly jobs-to-applicants ratio among IT professionals ranged from 3 to 5 in 2019 before topping 10 for the first time in December 2021, according to the Doda recruitment site run by major employment agency Persol Career. The ratio remained high at 9.5 in March, compared to 2.8 for marketing jobs and 0.4 for sales positions.

 

Leading chemicals company Asahi Kasei started a website in 2021 to recruit engineers to help it use artificial intelligence to develop materials. “[But] hiring experienced IT experts under the current employment structure is difficult,” said executive officer Toshiyasu Horie.

 

Others echoed that sentiment. “It’s hard to find workers with both work experience and IT expertise,” said Masakazu Toyama, head of the personnel and labor management section at electronics retailer Nojima.

 

Despite growing demand for their services, payment for IT professionals has been floundering. Their average annual income came in at 4.38 million yen ($34,466) in 2021, down 4% from 2019, according to Doda.

 

In skills-based employment systems, widely practiced overseas, wages are determined based on supply and demand. The median annual income of senior IT and internet professionals in the U.S. and China is 8% to 10% higher than the all-sector median, according to a 2021 survey by U.S. consultancy Mercer. In Japan, however, the median for IT and internet experts is 2% lower than the overall figure as wages do not reflect market forces.

 

Although skills-based employment is increasing in some industries in Japan, the traditional practice of “lifetime” employees being shifted through various positions in a single company during their career remains common. In a 2019 survey by the Japan Business Federation, or Keidanren, 65% of companies said they do not have a special pay structure for midcareer hires, while 28% said they decide IT pay on a case-by-case basis. Only 6% said they have a separate compensation system for such staff.

 

Acquiring IT skills is not cheap. Vocational schools often charge 300,000 yen to 600,000 yen for three- to six-month courses teaching basic technology skills. Given the prospect of limited pay increases, many workers have no incentive to sign up.

 

Last year, 50% of people who found new jobs in sales and service work came from different fields, as did 56% who took up clerical positions, according to Doda. But only 24% of those who were newly employed as IT engineers came from other industries.

 

Government officials appear aware of the scale of the problem, with some saying the dearth of skilled IT staff is the biggest obstacle to Japan’s digital transformation. And, according to research by the country’s communications ministry, 53% of companies consider the shortage of human resources to be a factor hampering digitalization, compared with 27% in the U.S. and 31% in Germany.

 

Indeed, industry observers warn that Japan Inc. must let market forces set wages or risk being overshadowed by the shortage of IT professionals for the foreseeable future.

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