Following in Japan’s Footsteps: How a Lost Decade Could Impact Employers

Amid the chaos and clamour of the banking crisis, the recession and the ongoing Eurozone crisis, one troubling question is being asked – is the West about to embark on a “lost decade,” like the one Japan suffered in the 1990s?

Certainly, there are many worrying similarities between the West’s current economic predicament and Japan’s experiences when its property and credit bubble burst in 1989, leading to 20 years of economic decline.

Japan’s “lost decade” resulted in a fundamental shift in the nation’s employment landscape, changing the way the country worked. And the signs are that the West could follow suit, so employers would do well to take note of two key developments from the Japanese experience:

  • Flexible and part-time employment: One of the most significant transformations in Japan has been a move away from lifelong employment towards flexible, part-time and lower-paid jobs. The number of Japanese workers in life-long employment has fallen from 85 percent to 65 percent over the past 20 years. This has particularly impacted younger employees, many of whom are desperate to find “proper” jobs. Employees no longer expect to remain with one employer for the bulk of their career — loyalty has shown a marked decline — and workers have been forced to become more self-reliant for pension, healthcare and other benefits, heightening the risk that older workers will not be able to afford to retire.
  • A decline in living standards: While those employees with full-time employment in Japan have received small salary increases, their living standards have fallen due to increased tax and social security payments and diminished pensions. Employees feel worse off and suffer lower levels of engagement as a result. In addition, much wealth has been destroyed by low stock market and property prices, both lower now than 20 years ago.

Workers need recognition and meaning in their jobs

Each of these developments is already apparent in the West; failure to adequately address them could contribute to disengagement and resentment in the workplace, which in turn will lead to lower levels of productivity.

To improve employee loyalty and performance, employers must recognize that their workers require clarity around what is expected of them, recognition that their efforts are appreciated, and a sense that they are achieving something meaningful each day.

It is crucial that employees arrive at work each day feeling that their job has purpose, which is why it is so important that leaders set an inspiring but reachable vision for the organization. If employees are getting what they want out of work, and have the resources they need to do it, they will be engaged, more productive, and more loyal to the organization.

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The squeeze on compensation and living standards, on the other hand, serves to severely increase the pressure on managers and leaders to keep their workers motivated. With financial rewards limited, and state benefits being diminished, younger workers, in particular, must be shown clear opportunities for growth within their organization.

Lessons we can learn looking East

They will be looking for the chance to acquire new skills through training and experience in a variety of disciplines or markets. And they will be looking for recognition, which, if clearly signposted through a transparent performance measurement system, may be far more effective tool for motivating ambitious youngsters than strictly financial incentives (and cheaper, to boot).

Economic pressures are sure to bring other challenges to the workplace — Japanese organizations have grappled with older employees being forced to delay retirement, the conflicting needs of an increasingly diverse workforce, and employees being asked to take on additional responsibilities without commensurate compensation — yet a clearer understanding of the past can help ensure organizations in the West are successful even in the most challenging of futures.

To do so, employers must simply train their gaze East.

Nick Boulter is Global Managing Director in the Reward Practice at the Hay Group. He helps major international companies succeed by working with their executive teams to turn strategies into reality. Nick also helps develop and implement talent, as well as culture and leadership transformation programs, and clarifies the impact of business change on organizations and roles. Contact him at


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