How to Encourage Human Resource Mobility

21 September 2023

Japanese version: 1 August 2023

Masashi Santo
Center for Policy and the Economy


  • The digital and green transformations will exacerbate mismatch at the task and skills levels
  • A job-centric employment structure will require a common skill-based language
  • The labor market needs better information, particularly corporate values and structured overview of skills

What’s missing from Japan’s labor market reforms

The Kishida administration’s “three-pronged set of labor market reforms” has kicked off. The package comprises policies to support reskilling to improve capabilities, to introduce a job-centric* salary structure flexible to the situation of each employer, and to facilitate labor mobility toward growth businesses. The goal is to free up Japan’s rigid labor market and stimulate the movement of human resources within and between organizations toward growth industries, thus encouraging wage increases and ultimately economic growth.

We propose the FLAP Cycle—comprising Find, Learn, Act, and Perform—as a framework to enliven the labor market. The government’s latest reform guidelines contain specific actions for Learn, Act, and Perform that complement one another.

However, the guidelines fail to sufficiently address the Find phase, FLAP’s starting point. Specifically, Find measures must take into account how generative AI will likely expedite changes in industry structure and human resource requirements. Companies must also update how they communicate to job seekers as they set their sights on different types of candidates.

*Job-centric employment structure: compensation determined by job content rather than length at company—typical in Japan and often termed membership—or working hours

An MRI original concept, FLAP stands for Find, Learn, Act, and Perform, a cycle to remedy skills mismatch

Generative AI will speed up changes in personnel requirements

When industries transform, so do their human resource requirements. We updated our long-term labor supply and demand forecasts based on digital technology scenarios through 2035. We take into account business transformation using digital technologies (digital transformation, DX), transition to decarbonization (green transformation, GX), revitalization of the semiconductor industry, which is crucial to economic security, and the impact of generative AI on employment.

That said, all scenarios contain an element of uncertainty, and forecasts should always be viewed as one example of assumptions for the future.

We calculated totals for labor supply and demand through 2035 by main factors (Figure 1). There are three points to note here.
Figure 1: Labor market supply and demand from 2020 through 2035
Labor market supply and demand from 2020 through 2035
Note: Each item rounded to the nearest 100,000

Source: Mitsubishi Research Institute, Inc.
First, industrial structure transformation will generate new labor demand of equivalent quantity as the employment that is lost. As shown in Figure 1, the digital transformation, the green transformation, and revitalization of the semiconductor industry will add demand for 4.7 million, 2.7 million, and 0.2 million workers each. However, the gap between labor supply and demand will be approximately 1.9 million, because labor supply will be reduced by population decline.

Second, the skills mismatch will pose a greater problem than the labor shortage. A large number of professional technical jobs will be created, mainly in IT. Meanwhile, most reduction will occur in clerical service and sales jobs. We calculated that the skills-to-jobs mismatch will give rise to a shortage of 4.8 million workers, far greater than the labor shortage of 1.9 million workers.

This means that if we are to harness digital technologies and achieve carbon neutrality, we must somehow fill a labor shortage of 6.7 million workers in a few decades. A mismatch of this size can only be rectified by large-scale reskilling and encouraging labor mobility within and between companies.

Third, the mismatch also arises in units of tasks and skills rather than people or jobs. Based on the above calculations, digital transformation, including greater use of generative AI, will reduce labor demand by around 9.7 million workers, roughly 15% of our forecast for employed persons in 2035.

The key point here is that advancing digital technologies will not simply replace the 9.7 million jobs lost; they will replace a portion of the tasks that a given job comprises. Naturally, a certain task may be included in many different jobs. We must also be aware that generative AI, like ChatGPT, may take over from humans some non-routine tasks* previously thought beyond the realm of machines.

Japan will face an increasingly constrained labor supply and should regard task replacement by generative AI and other technologies as a big opportunity to improve productivity, not a threat. We must determine in all occupations which human tasks can be taken over by machines, identify which human skills enable us to utilize AI to its fullest power, and refine those skills.

One example is the skill of asking ChatGPT appropriate questions, making proper decisions based on the information thus obtained, and bringing team members on board to put decisions into action. Companies and governments must clearly delineate skills like these and encourage the workforce to master them.

These three points hint at imminent transformation to the structure of our industries depending on how we deal with economic security and transformations both digital and green. This will set into motion human resource movement beyond individual companies and redefine the skills in demand across a broad range of occupations. It is essential that the government is aware of these shifts while advancing its three-pronged set of labor market reforms.

*Work for which there is no set answer and different responses are required at each instance. Examples are planning, negotiations with customers, and the development of new businesses

A job-centric employment structure based on skills

Government guidelines repeatedly stress the need to disclose information to the labor and capital markets. For example, they demand the use of open badge measures, or the digital authentication and display of credentials, a common standard across the world.

Guidelines also state that disclosure regarding salary and employment schemes is essential for the adoption of a job-centric model—one where salary is determined by output instead of work hours. It calls for the sharing of job-posting information and required skills too to encourage labor mobility. Japan’s labor market lacks both mobility and such sufficient information for it. However, the guidelines fail to clarify who—be it corporations, workers, or educational institutions—should disclose what information and in what way.

In the context of changing industry structure and in-demand skills, information circulated in the labor market must be expressed in a common language that transcends a particular company, business, or industry. It is essential for work experience and job descriptions to be stated using the same standards. It is also desirable that the shared information be part of a structure whereby the minimum unit of human resource requirements is based on skills.

It is also important that government guidelines are based on the adoption of job-centric HR systems. Clarifying job definitions and adopting compensation based on job content are essential for Japanese companies to move away from the traditional seniority-based HR system and achieve equal pay for equal work.

Even in Europe and North America, which have a long history of job-centric employment structures, organizations with uniform job definitions are facing challenges in overcoming this unpredictable age of volatility, uncertainty, complexity, and ambiguity (VUCA). Some forward-thinking companies are beginning to experiment with using skills as the basis for hiring, training, assignments, and career development*.

Japanese companies adopting such job-based HR systems must assess the diverse skills of human resources and be able to define jobs and roles in terms of skill sets.

* Intergovernmental organizations such as the Organization for Economic Cooperation and Development (OECD) and independent economic organizations such as the World Economic Forum stress the importance of assessing skills when running training initiatives. Global consulting firms such as McKinsey & Company and Deloitte have followed their example and are publishing recommendations for transitioning to skill-based organizations

Information for the labor market: corporate values and structured overview of skills

We propose two courses of action for the disclosure that will underpin Japan’s shift to job-centric employment (Figure 2).

First, companies must communicate, through dialogue with workers, their values, purpose, and the strategies to achieve them. This is essential for workers to draw a connection between their given job and the larger direction of their company.

Second, having visualized workers’ diverse skills, they must define jobs by the skills that are needed to perform them and explore HR measures focused on those skills.
Figure 2: Flow of communications that will underpin Japan’s shift to job-centric employment
Flow of communications that will underpin Japan’s shift to job-centric employment
Source: Mitsubishi Research Institute, Inc.

1. Share values

Japanese companies, mainly large ones, began disclosing information about their own human resources to capital markets in the fiscal year ended March 2023. The goal is to take human capital management, or increasing corporate value by investing in people, into the mainstream. Going forward, however, they must also disclose information to the labor market.

Disclosure to the labor market will provide a way for companies to deliver information and engage in dialogue for the purpose of acquiring and training human resources as well as leading to a transformation in labor practices. Companies must discuss their values and strategies in a common language to gain the understanding and support of workers inside and outside the company. This will enable companies to attract human resources who are essential to their business strategies.

2. Assess skills

Some companies in Europe and North America are trying to run their organizations with a focus on skills. Their goal is for their company and employees to understand the jobs and roles required for achieving business objectives using the common language of skills.

In these organizations, workers can track in real time the skills that are required for their roles and what they need to learn to acquire them despite being in a constantly shifting business environment. Workers then harness digital technologies to refine the skills they need to perform tasks only humans can do.

It goes without saying that changing into a skill-based organization in one go is a big task. A more realistic approach is doing it step by step, starting with occupations for which defining skills is relatively straightforward and business divisions whose work is project-based.

Although it is relatively easy to adopt skill-based initiatives for mid-career hires and training, those directly linked to compensation are more difficult. The best way forward is for companies to systematically assess skills related to their company while adopting skill-based initiatives that are easier to implement.

The flow of information in a common language is essential for optimal mobility in the labor market, both inside and outside of companies. Companies must communicate their values, purpose, and strategies, while human resources must have a clear understanding of the skills required in growth businesses. Meanwhile, the government needs to foster an environment for the common language to gain currency while making policy reforms from a neutral position and proactively supporting reskilling. A combination of these efforts will likely result in human resource mobility without mismatch.

Society as a whole must support each worker’s career evolution at a time when worsening constraints on human-resource supply are inevitable.

Author profile


Masashi Santo

Center for Policy and the Economy

Joined Mitsubishi Research Institute in 1994. He is involved in policy proposals focused on human resources, labor, and social security. He also does work on labor supply and demand, demographics, simulations related to healthy lifespans, and data analysis using various statistical methods. As Chief of HR Research, he is responsible for coordinating in-house research projects, collaborative work with other companies, and policy recommendations in the human resources domain.