Paper short abstract:

The digital transformation of the economy has changed the relationship between employers and employees. In Japan, employment has shifted towards “job-based models,” creating demands for new forms of welfare. Japan’s concurrent shift towards a more compact workforce may accommodate these demands.

Paper long abstract:

The 21st century has experienced two major disruptions: the massive demographic shift of ageing and shrinking populations in most industrialized economies, and the digital transformation of the global economy with its introduction of autonomous systems, machine learning and ubiquitous inter-connectivity. This paper considers the deep interconnectivity between these two phenomena and its implications for capitalism globally by examining Japan’s transitioning employment practices and welfare needs as a case study. Japan is ideally situated to serve this purpose due to its concurrent position as the global frontrunner in demographic change.

The digital transformation has changed the nature of employer-employee relationships by creating stronger demands for specialists in high-skilled jobs. Japan’s historical practice of lifetime employment, which typically hired a generalist and bred a jack-of-all-trades in-house, is no longer able to meet the demands of the new digital economy. Employers need to hire high-skilled specialists for task-specific jobs while outsourcing more of their education and training to outside institutions. These jobs are time specific and frees employers from the burden of over-employment. Employees, on the other hand, desire greater job mobility and the ability to market their specialized skills to multiple employers for competitive, performance-based compensation. These complimentary needs have created a “job-based model” of employment increasingly embraced by younger generations of workers.

This “job-based model” of employment in turn has created demands for new forms of welfare based on the individual as opposed to the employer. High-skilled workers seek welfare schemes with greater depth of coverage often provided by the private sector, while low-skilled workers seek welfare schemes with cheaper and broader coverage more often provided by the state. Fortunately for Japan, these changing demands come at a time of rapid demographic change when the workforce and overall population are both shrinking, creating opportunities for adaptation and adjustment.