"Economics 101" for job seekers: 2007 recruiting for managers and IT specialists in foreign companies.

Japan Inc's Terrie Lloyd provides a primer on how the economy connects to job hunting, offering tips on getting the timing right and advice on how trends in the market can help you improve the salary and conditions in your next job.

The economy and general job market

Macroeconomics teaches us that a nation's employment market lags its growth-in recent years in Japan, this has been by around 6-12 months. While for most people this is simply an intellectual curiosity, if you're advanced in your career development, i.e., you're a manager or an IT specialist, then the market cycles will have a strong bearing on your promotions and career moves. Understanding the market means that you can get your timing and approach right, and gain the maximum amount of bargaining leverage as you move up the career ladder.

Even if you're not well developed in your career yet, understanding the economy may be the key to keeping your job! The reason is that compared to domestic companies, employees in multinationals are much more exposed to the linkages between the global markets, Japan's financial health, and one's job prospects. This exposure was clearly emphasized by the staff-cutting conducted by many multinational banks and securities firms, along with Japanese exporters and their foreign vendors, following the global dotcom bust and the punch-up of 9/11.

Although most of the bloodletting took place over a short period, the delay in resuming hiring and the continuing freeze on wage increases lasted for several more years. Those who were let go were typically either in troubled divisions, or they were those people who are vulnerable in a down-turn: newly joined staff, trainees, and underperformers. Clearly, then, this period is proof that the macro effects of the economy are real and if you're going to take a risk and trade up on a job, you want to make sure that you are jumping into a growing sector and that you have got your timing right so that you're not last in as the job cuts start.

The good news is that as of writing, in February 2007, the Japanese economy continues to boom. The yen is low for a variety of factors, such as the yen carry trade and consumer speculation in Forex, none of which appear to be problematic to the government. Exporters are doing well enough from the low yen that their trickle-down spending is starting to float subcontractors and other smaller companies in the economy. Now, oh so slowly, consumers are opening their wallets-a sure sign that the economic improvements are robust and not just a temporary phenomenon.

Japan's GDP, its level of national growth, has been seesawing up and down for the last 12 months, and while it fell from 1.1% annualized for the period April-June 2006 to 0.8% for July-September 2006, recent trade figures show that the October-December 2006 period was probably pretty good, and will probably come in at around 2% or so. It is hard to say where we currently sit in this current economic cycle, now officially the longest since WWII. This writer feels that we are peaking and that the risks of a US slow-down increase monthly.

An aspect of this recovery, which is very different to others, is that perhaps for the first time domestic companies are not sharing the profits with their employees. The Ministry of Finance says that in Q3 of 2006, company profits rose on average by 15.5%. However, the resulting cash flow is being channeled into investment in plant, R & D, M & A and shareholder/director payouts rather than wages. According to an annual survey by the Ministry of Finance, companies capitalized at more than JPYlbn tripled their dividend payments between 2001 and 2005 and doubled sales and bonuses paid to executives. Over the same period, the wages of an average salary man actually fell 6%, although they finally recovered a scant 0.2% in 2006-a small claw-back of the more than 10% lost during the period 1997 through 2005.

The Nikkei newspaper had a good example of just how employees are doing their "hard time". It pointed out that in January 2007 the monthly salaries of Japanese employees, including overtime and bonuses actually fell 0.6% from the year before-thereby leaving the average employee with a wage gain of just JPY5,500 (US$45) for the whole of 2006.

As the Nikkei wryly commented, 'Just enough to buy a case of beer".

It's not just high profits which should be pushing wages up. The nation's work force is about to get dramatically smaller as the 6.76m Dankai no Sedai (literally, "cluster generation") baby boomers retire over the period 2007-2009. This micro phenomenon is creating one of the tightest job markets in the last 14 years. The current ratio of job applicants to open positions is 1:1.06 and a surprising 1:1.89 for university graduates. Further, although it jogged up slightly from 4% in November, unemployment for December 2006 was still at a near 8-year low of just 4.1%.

So what is going on? Are salaries due for a strong upwards surge or are we living in some weird extended spell of wage stasis? Most likely the nation is on the verge of wage inflation and that the current high rate of economic growth will be undercut as a result. Although the Japanese as a people are long-suffering, the current lack of profits trickle-down to salary men is now becoming a political hot potato, and one which the government will not tolerate for long.

Indeed, for those sectors most deeply connected to the export and investment boom, such as banking, wage growth is already biting. According to the Nikkei newspaper, leading retail banks have seen the cost of their mid-career shinkin bank (credit association) hires increase from an average annual salary of JPY4.5m in 2004 toJPY6m last year. That's an average wage increase of 12.5% a year.

Getting the timing right

For those of us in the foreign sector, record profits by large Japanese companies is generally good news. These large firms are typically manufacturers and exporters, and they are robust purchasers of foreign technology, IP, consulting, finance, and raw materials. If they are healthy and growing, so are their foreign vendors. If you're in one of these firms, you are probably enjoying some of the best years the company has ever had and so it is easy to imagine onwards and upwards personal growth in your existing company. But remember those cycles. Once the pressure is on the Japanese manufacturers again, ask yourself just how stable your business is going to be. If you're doing well at the moment, but your sector is not stable, you might want to think about trading up to a job where the downturn will have less effect.

As business continues to be good for foreign firms, the law of the jungle has it that an already chronic shortage of experienced bilingual staff is being exacerabated. This is good for job seekers, bad for hirers, and we're thinking it is likely to set off a mini wages spiral in the foreign company market as well. So if you're thinking about moving, the timing is probably about as good as it's ever going to get.

For those stoic souls who may still be working for a Japanese company and don't know it already, foreign firms in Japan typically maintain their competitiveness by relying on superior people, products/services, IT, and process management to win business. Of these things, people are the resource that companies have least control over, and thus the prices paid for talent are subject to market forces. The general consensus is that foreign multinationals pay up to 20%-30% more than their Japanese counterparts for their staff.

People squeeze

Actually, despite the current labor squeeze, the job market for people working in the foreign sector is perennially a seller's market, for two main reasons: i) the perceived workload and risk of working for a foreign firm restricts the number of job candidates for a given position, and ii) the language requirement-especially for those looking to climb the career ladder and who will eventually have to speak to counterparts in head office.

The people shortage is highlighting the fact that foreign firms' value systems sometimes do work in their favor. Take for example one demographic which is not scared of hard work, and instead simply asks for fair treatment and equal opportunity is the forgotten half of Japan's population-women. Young women in particular are typically discriminated against by omission from promotion opportunities. It is no wonder then, that many give up the idea of working when they become moms, and drop out of the work force all together. This habit is changing, however, and according to the Ministry of Health, Labor and Welfare, women are now flocking back to business jobs, with 3.92m finding jobs versus 3.88m leaving them. This represents a 3.2% increase in the number of hires. The trouble is that when they go back to work, they're starting at the bottom of the totem pole again.

With a preference to be recognized for their performance, women are finding better opportunities at foreign firms. Recently a Japan Times article highlighted the fact that Merrill Lynch has a female president, 47 year old Izumi Kobayashi, while there is no female in a comparable position at any of the Japanese banks. Kobayashi's team has very capably turned Merrill around from a major internal crisis in 2000 that was triggered by massive losses on its retail brokerage network. She hasn't looked back since and this has prompted a number of other foreign securities firms to promote their women in turn.

What opportunities?