Labor Productivity Improvement and Employee Engagement

December 25, 2024 [No. 131 – 2024]

Prof. Kuriyama Naoki
Faculty of Business Administration
Dean of the Graduate School of Economics, Soka University

 

 

 

In 2021, Japan ranked 27th out of 38 OECD member countries in labor productivity on a per-hour basis and 29th out of 38 on a per-worker basis. Both were its lowest positions since 1970. In terms of labor productivity in the manufacturing sector (added value per worker), Japan ranked 18th in 2020. Its figure was slightly less than 60% of the U.S.’s figure and roughly equal to those of France and South Korea. Even in the manufacturing sector, on which Japan’s brand has been built and in which it ranked first among OECD nations in 2000, productivity has declined—especially since 2015, when its ranking has been stuck in 16th to 19th.

While labor productivity is trending downward, it was said in the past that Japanese industry, which fundamentally emphasizes intensive input of employment, did not need to care that much about rankings based on international comparisons. However, the decline in labor productivity is not stopping and has become the biggest problem facing Japanese companies.

From the late 1980s to 1992, Japan was first for competitiveness in rankings published by Switzerland’s IMD, and discovering the sources of its competitive advantage was a focus of research by Western scholars in the 1980s and 1990s. However, its position subsequently declined rapidly, as it dropped to 20th then 30th. This figure has become symbolic of Japan’s so-called “lost 30 years.”

For Japanese companies to regain their competitiveness, it is clear that they must shift to an approach that will increase added value—but how should they set about doing this?
From 1988 to 1991, while I was working in the ILO’s head office in Geneva, Switzerland, a lot of research argued that the source of Japan’s competitiveness was the diligent work approach of its employees. The English term “commitment,” which expresses employees’ involvement in their work, was frequently used, and systems based on Japanese employment practices that enhance workplace skills, such as Kaizen activities (5S, etc.) and OJT (on-the-job training), attracted attention. The neologism “Japanization” even appeared in the title of a number of research papers.

However, beginning in the 1990s, at the same time as Japan’s competitiveness was decreasing, the words used to describe “work approach” and “involvement in work” changed. The term “engagement” became to be used more often. In particular, three work approaches (engaged, not engaged, actively disengaged) mentioned in 2006 by the U.S. firm Gallup, the biggest data company in the world, had a major impact. Survey results showed that the proportion of employees whose work approach was “not engaged” or even “actively disengaged” was quite high, shocking human resources managers around the world. Since then, “engagement” has been frequently used to express a work attitude in which employees are content and actively involved, leading to high added value, and the question of how to enhance engagement has become a shared issue worldwide.

In a 2023 employee engagement survey by the aforementioned Gallup, the proportion of “engaged” employees in Japan was 5%. This was the lowest figure among the 125 countries for which there was data, and Japan set a record low in four consecutive years. What’s more, the results showed that the proportion of “not engaged” employees was 72%, while some 23% were “actively disengaged.”

During Japan’s high-growth era, workaholic employees succeeded based on the “do your best as everyone does” attitude to work. However, to enhance added value and international competitiveness in the current corporate environment impacted by globalization and pronounced market changes, a key issue for Japan’s human resources managers is shifting to the “make your difference” work attitude based on individual strengths suggested by research on engagement, which is not yet widespread in Japan.