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No.5 ,Economy  Feb 01, 2011

WHY UNIVERSITY GRADUATES SHOULD CONSIDER APPLYING TO SMES

What is to blame for the tough employment situation facing new graduates in recent years? One popular argument that appears plausible at first glance points to the Japanese system of lifetime employment as the root of the problem. Basically, the argument goes as follows. Lifelong employment means that Japanese companies are unable to dismiss full-fledged “regular” company employees, protecting the vested interests of older employees and making it difficult for the poor young things leaving university to find permanent positions. As a result, they are forced to take jobs as irregular hired labor. The remedy normally put forward by proponents of this argument is to make the employment system more flexible. In plain terms, this usually means making it easier to offload the useless old codgers and hiring young people to take their place.

Let me start with my conclusion: This argument is nonsense. To see this, all you have to do is look at the unemployment figures for the United States, where a flexible employment system is already in place. The unemployment rate in the United States is far higher than it is in Japan. In Japan, about 9 percent of young workers (defined as those under 25) are out of work, against an average unemployment rate of approximately 5 percent for the population as a whole. The equivalent figure in the United States is approximately 20 percent, which is more than double the overall unemployment rate of around 9 percent. The idea that Japan could guarantee secure employment for young people simply by introducing a more flexible system like the one in use in the United States or Britain is a fantasy.

We can go further. The idea that there are not as many jobs for young graduates as there used to be is itself an illusion. According to the theory, older workers are hogging all the regular employee positions, and in a period of sluggish growth not enough new jobs are being generated to make up for people reaching retirement age. On the face of it, this sounds logical enough.

But the data make it clear that neither the number of people in employment nor the number of job openings is falling. According to figures in the School Basic Survey conducted by the Ministry of Education, Culture, Sports, Science, and Technology, around 294,000 new graduates of four-year universities found employment as full-fledged regular company employees each year during the bubble economy of the late 1980s. By 2008, this figure had risen to around 390,000. Even in 2009, after the turmoil of the Lehman Brothers collapse, nearly 380,000 new graduates found jobs in this category. Even this year, which is being described as the worst “employment ice age” ever, some 300,000 people are predicted to find new jobs as full-fledged company employees. An analysis of statistics on graduate-level job openings compiled by Recruit’s Works Institute shows similar results. New job hires peaked at 840,000 during the bubble. There were 940,000 similar hires in 2008. There were 580,000 positions advertised this year. Compare this to the figure for 1994, another economically slow year, when there were 390,000 jobs going. If we take into account the peaks and troughs of the economic cycle, it is clear that employment opportunities for new recent graduates are actually increasing over the long term.

Additionally, the population of 22-year-olds today is nearly 30 percent smaller than it was in the bubble period. If the population of new graduates has shrunk by 30 percent, it would not be surprising if employment opportunities had decreased by a similar amount. But in fact, the number of job openings and the number of new hires are both increasing. We should not be lamenting the unfortunate fate of the poor young people graduating university today. If anything, they have it better than their predecessors.

Too Many Students?

We have seen above that, contrary to the common view, new hires and job openings for new graduates are both increasing if we look at long-term trends. So what is preventing new graduates from finding suitable jobs?

The answer is simple. There are too many students. The system is producing superfluous numbers of graduates, and although the number of job openings has also increased, it will never be able to keep pace. This is what is makes it so difficult for new graduates to find jobs. The number of universities in Japan has increased by 70 percent over the past 25 years; the number of students by 60 percent. The pace of this growth has dramatically outstripped the increasing number of employment opportunities, and the value of new graduates has collapsed to bargain basement levels.

Although there is a tendency to conflate the two, a tough employment climate for university graduates and a tough climate for high school leavers are two quite different things. Although job openings for university graduates are increasing, opportunities for high school leavers are dwindling rapidly. So-called blue-collar jobs, along with jobs in construction, agriculture and forestry, self-employment, and clerical work previously taken by large numbers of high school leavers, are disappearing fast. The only reason we do not hear so much about an “employment crisis” for high school graduates is that the number of high school leavers has dropped at about the same rate as the number of jobs. More and more people are continuing their studies, and entering the job market a few years later as university graduates.

If these people were looking for jobs out of high school, the employment situation in Japan would be much easier to understand. It would be clear to everyone that there are not enough non white-collar jobs. Instead, large numbers of these people continue their studies at university, making the situation more complex and causing widespread misunderstanding. We have ended up in the position we are in today, where claims that there are not enough white-collar jobs for young people–or that companies are hiring fewer regular employees and relying more on non-regular employees–go unchallenged.

People claim that industrial jobs have shifted overseas as a result of globalization and the IT revolution, and that there are now fewer jobs available in Japan as a result. But this is true only of blue-collar jobs. The situation is quite different for white-collar jobs. Company headquarters have grown fat on booming global sales, and management roles for Japanese supervisors in offices and factories overseas are also increasing. As a result of globalization, the number of Japanese white-collar employees at companies like Toyota Motor Corporation, Panasonic Corporation, and Nippon Steel Corporation is actually increasing. Let’s take a moment to review the facts so far.

•There are fewer blue-collar industrial jobs, and fewer jobs in construction, agriculture and forestry, self-employment, and clerical work.
•There are increasing numbers of white-collar “regular” employees.
•Fewer people are entering the job market out of high school; most people are now going on to university instead. The percentage of people receiving a university education is now too high.
It is a mistake to blame the corporate employment system for the difficult situation facing recent university graduates. The supply of applicants is simply outstripping demand.

So what should new graduates do to find jobs? Should they compete with high-school leavers for blue-collar positions or jobs in farming? But the number of these jobs is falling, and in terms of overall unemployment, it would be meaningless for university graduates to compete for these jobs. They can always take a risk and start their own company. Perhaps a few exceptionally gifted people might succeed this way. But it would be unrealistic to expect large numbers of ordinary people to thrive by starting their own company.

As it happens, a simple remedy is already available. Let us look carefully at the following figures.

In large companies with 1,000 employees or more, the ratio of openings to graduate job seekers over the past fifteen years has oscillated between 0.5 and 0.8. This is what has led people to describe the period as an “employment ice age.” But if we turn our attention to companies with fewer than 1,000 employees, things look quite different. Here, even in the current climate, job openings outnumber applicants, with 2.16 job openings to every job seeker, according to a survey carried out by Recruit’s Works Institute. The ratio is even higher in smaller companies with 300 employees or fewer, at 4.41. That’s right–the truth is that there are still white-collar positions going unfilled. The demand for white-collar workers in small and medium-sized enterprises is not being met. The real reason why new graduates are struggling to find jobs is a failure to match the surplus crop of graduates with job opportunities at small and medium-sized corporations.

Fear of the Unknown

But if you suggest to students that they should consider working for small or medium-sized companies after graduation, they often don’t like the idea at all. They object that SMEs are less stable and reliable than big corporations, and the pay is lousy. What’s more, those small companies are notoriously bad in terms of compliance. How can you expect us to put up with a working environment like that? But this is just another widespread misunderstanding. If you are not convinced, consider the following three points carefully.

First of all, the overwhelming majority of Japanese people across all generations work in small and medium-sized companies. In this sense, working for a smaller company is nothing unusual. In fact, it is the norm.

Second, it is grossly unfair to suggest that none of Japan’s smaller companies are worth working for. Certainly it is true that the SMEs cannot compete with the big firms in terms of average figures. Whether it is performance indicators such as sales figures or salary levels and other aspects of employee compensation, the average SME is outperformed by the big companies across the board. But what if we concentrate only on the top-ranking companies, instead of looking at the average figures? If we look at companies making at least 10 percent operating profits, for example, SMEs outnumber large corporations with at least 1,000 employees by 50 percent. And there are three times as many SMEs making operating profits of 20 percent or more. In other words, not all small and medium-sized corporations are bad. Many of them are excellent companies, offering reliable prospects for the future and rewarding, meaningful work. There are 1.7 million SMEs in Japan–even if we assume that only ten percent of them are decent companies, that still leaves 170,000 companies to choose from. These are huge figures.

The third point I want to underline concerns what it means for a company to employ someone straight out of college. Hiring a new graduate means employing someone who in all likelihood will not add to the strength of the company for several years. The company expects to train them on the job. This is clearly out of the question for a small company with no extra resources to spare. Given the scale of the company, a small firm with 20 or 30 employees is not going to be hiring many people straight out of school. The companies more likely to be hiring new graduates are those with at least around 100 employees. Companies on this scale may still be categorized as SMEs, but they can be relied on to tick all the boxes when it comes to compliance. They will have the labor standards bureau to deal with if their employment system does not comply with requirements, and they are big enough for the Tax Office to scrutinize their accounts carefully. In short, the type of SME likely to employ new graduates is also likely to offer better opportunities for a rewarding career.

What do you think? In light of this evidence, don’t you agree that we need to act urgently to address the situation in which students are giving short shrift even to respectable SMEs that fit these criteria?

The Ministry at the Root of the Problem

If I had to assign blame for the current employment crunch for new university graduates, I would probably say that ultimate responsibility lies with the organization that not only created too many universities but also failed to respond to the inevitable glut that resulted by encouraging new graduates to apply for jobs with SMEs. The responsibility lies with the Ministry for Education, Culture, Sports, Science, and Technology.

Of course, a job search is an individual activity–but it is also part of a social system. It naturally follows that smooth operation of this system is closely linked to national policy. How has the Democratic Party of Japan government performed in terms of providing support for job seekers?

At first, the DPJ’s efforts were limited to measures designed to deal with the “freeter” phenomenon–young people with no prospects, drifting from one poorly-paid part-time job to another. I was far from convinced that this was the right policy, as I made clear in media debates with DPJ members and others at the time. My view was that it surely made more sense to concentrate on preventing an injury in the first place rather than trying to staunch the bleeding on an open wound. The government would have been better advised to spend money on plugging the mismatch between companies and new graduates, instead of panicking about those who had already joined the freeter flood. In 2010, the policy changed. Prime Minister Kan Naoto began to stress the importance of employment support, and a budget of 300 billion yen was set aside for measures to encourage employment of new graduates. As someone who believes that matching the needs of SMEs and students should be our number-one priority, I am honestly pleased that a first step has been taken in the right direction.

But this alone will not be enough to solve the problem. If you take the time to examine the budget and the recently announced policy, it is clear that it amounts to little more than doling out cash to universities and companies. The government is distributing money to the companies, and asking them to hire people in return. More money is being doled out to the universities, who are being asked to use it to hire career guidance counselors. But there is a danger that this policy will have undesired consequences. It is possible, for example, that companies that would normally not have the resources to hire more people might be tempted to hire new graduates for the sake of the subsidies on offer. These may include so-called “black companies” that have no intention of running their business and finances properly. If disreputable companies start to enter the fray just when we have finally persuaded good SMEs to start engaging actively with new graduates, there is a danger that the job market will be thrown into chaos.

There is no sense in simply throwing money at companies. There are already plenty of jobs out there. The problem does not lie with the companies. If the government is going to spend money on this issue, it should be spent on a policy to attract more students to apply for jobs with SMEs.

Persuading Students to Take SMEs Seriously

There are five main reasons why students are reluctant to join SMEs. After considering these reasons in order, I will present my own proposals for ways to match students with these firms more efficiently.

The biggest reason first: The main reason why students steer clear of SMEs is simply that they do not know anything about them. In the case of a major company, it is likely that a student will have used one of the company’s products as a consumer, seen their commercials on television, or will at least have some kind of idea of what kind of business the company is engaged in. Also, because these companies hire large numbers of people, there is a good chance that alumni from the student’s university will be working there, allowing a potential applicant to talk to them and get a personal impression of what working for the company is like.

With SMEs, on the other hand, there is no information at all. A student cannot even imagine what kind of work most of them do. The people in the university careers center don’t have much data either, and can often only provide the kind of bland information available on the company website or on job description forms submitted to the job center. It is not surprising that most people are not enthusiastic about looking for work at this kind of company.

The second reason is unease. The would-be employee has no way of protecting himself in the event that the company turns out to be a renegade “black company.” Corporate image is important, and it is probably safe to assume that a well-known corporation will not try to pull anything too outrageous. But with an SME, the job-seeker worries that employees could be left high and dry if things turn nasty and the company calls their bluff.

The third reason is a concern that they will not receive adequate training. And it is true that SMEs compare unfavorably with major companies in terms of both the quantity and quality of the employee training.

The fourth concern many people have is that they will have no peers their own age if they join a smaller company. A company of 150 employees might hire an average of five new graduates a year. If these five people are split up among different departments, each new employee may be isolated without any co-workers of the same age with whom they can share complaints and engage in healthy competition. Even if it is no longer the case that people in Japan are expected to devote their lives to work, people still spend large chunks of time at the office, and it is not unreasonable for people to crave the stimulation that comes from being around other people their own age.

The fifth issue is the question of compensation–and the fact that, on average, SMEs tend to offer lower pay and less vacation time.

In what follows, I want to outline my own proposals for measures to address a number of these factors at once, and hopefully deal with some of the sources of unease and dissatisfaction that students have with regard to SMEs.

My first proposal would be to organize a month-long introductory training program for all new employees who have been hired by SMEs. This would provide a thorough grounding in corporate culture, from the correct way to exchange business cards to how to make phone calls to clients. After spending a month together like this, it is likely that peer groups would start to form among participants. Ideally, this introductory training would be followed by a recap session in the summer vacation and another in the spring of the following year. This would serve to gather the peer group together, creating the same kind of opportunities for training that exist in large corporations. This would not only encourage competition, but would also give new employees an opportunity to air their grievances, and might even lead to romance. The positive atmosphere thus generated would help to remind people that SMEs have a lot to recommend them too.

Career counseling could be provided to all participants at these follow-up training, addressing any complaints about power harassment or sexual harassment issues at work. The meetings would become opportunities to provide emotional care.

And how about this as a way of addressing worries about compensation? Establish a new system that would reward people with a week’s vacation and a payment of 50,000 yen after they have worked for a year. You could even arrange it so that people can decide to defer their “golden handshake” package for a further year, in which case they would get a two-week vacation and 100,000 yen. If the government is going to spend money, this is what it should spend it on. Ideally, the scheme would become a talking point and something for people for look forward to in their peer group discussions. “Let’s work hard for a year and then celebrate with a trip to Hawaii.” A system of this kind would surely help to provide a kind of incentive.

A special branch of the Labor Standards Office could be opened for new graduates, to provide a safe haven in which employees can seek protection from the depredations of “black companies.”

A database could then be compiled, bringing together information on training and counseling, black companies, the numbers of people receiving awards for long service, and so on. This would provide future generations of students with a valuable source of real-world information, and enable them to choose a company with peace of mind.

How Important Is Academic Background?

Now I would like to change tack slightly and talk a bit about how companies really assess university students.

One of the most frequently heard criticisms is that university students today no longer apply themselves to their studies. Not only do they lack an adequate grasp of their academic subject, they are also failing to acquire the kinds of practical skills they could use immediately after joining a company. Japanese universities, in this view, are failing to produce the human resources that companies need. It might be tempting to regard this sermonizing as nothing more than the latest twist on the age-old complaint about the “young people today” being sloppy and disorganized. But on the question of the university curriculum and graduate employment, it is as well to get the facts straight from the outset. There is a risk that misunderstandings in this area might send universities off in the wrong direction.

The first thing to make clear is that most people will never use what they study at university once start work. Ultimately, around 70 percent of white-collar employees end up in sales. There is little call for macroeconomics or legal theory in the average workplace. Therefore, whether students spend their university years studying hard or partying hard should really make little difference to a company. Essentially, this has been the case since salaried workers became the backbone of Japanese middle-class society in the postwar years.

So why do companies bother about educational background at all? The fact is that companies want to employ students who have graduated from a competitive university with a steep grading curve. Companies today are much stricter when it comes to hiring than most people realize. Certainly they are not in the business of hiring people in a slapdash way. If Japanese companies set such store on academic background, it is safe to assume that there is a good reason for it.

Basically, there are three types of people who get into the most competitive schools. The first is the really smart people. From a company’s point of view, these people hold promise as the kind of employees who will be able to carry out research or marketing activities requiring an ability to absorb and consolidate large volumes of diverse materials and data, or who can be put in charge of new projects and other complicated assignments.

The second group is made up of people who are good at synthesizing an argument and grasping the essentials. Their raw intelligence may be only average, but their ability to grasp the essentials of a subject allows them to study efficiently. This skill comes in useful in the workplace too, and in many cases these people can be trusted to take care of sales.

The third type is hard-working, steady types with endurance and staying power. These are the people who can be relied on to stick faithfully to a course that has been laid out for them. Having a certain number of people like this, who will resolutely carry out instructions from higher up in the company, is a significant plus for any management team.

Most people who get into a competitive university fall into one of these categories. A person in any of these categories will be a useful asset for a company. Companies are not looking at whether a person studied a difficult subject at university. Instead, they want to know whether or not a student belongs to one of these categories.

For this reason, a large company that attracts as many as 10,000 applicants for jobs will start by using the applicants’ academic background to reduce that number to around 1,000. Ultimately, they are going to recruit perhaps 30 or 40 people, so even if they whittle the initial pool down to 1,000 based on individual character and other factors, they can still be assured of sufficient diversity in the workforce.

What Companies Want From Universities

So what is the meaning of the four years students spend at university? Whether a student belongs to one of these three categories or not is something that can be assessed at the entrance examination. If this is really all that matters, then companies might as well make their hiring decisions by looking at the results of students’ university entrance examinations. Where does the value of the universities lie?

Two types of studying take place in a university. The first aims to turn the student into a scholar. A student gets to the heart of a subject, and masters a specialized area. This kind of knowledge is not likely to be of much use to ordinary people in their daily lives; it is specialized study by the ablest minds, which raises society’s overall level of civilization.

The second type of study cultivates the ability to think about things. It involves learning what kind of examples you need to decide whether a given proposition is correct, and how to set about dealing with a specific problem. This ability to think about things in the true sense is something that people can continue to use in their working lives. Both in sales and in formulating plans, the ability to gather the necessary information, interpret it, and explain it in a way that is easy for the listener to understand are all valuable skills.

The problem with universities is not that students are lazy. Far more important is the question of what purpose the university curriculum should serve. Should the curriculum be designed to turn students into scholars? (Of course, this may be a reasonable aim at the most selective universities.) Or would it make more sense to regard college as a continuation of the same kind of education that students have followed through high school, based on memorizing facts and writing essays according to a model pattern? Of course, college-level study takes place on a higher level than elementary, middle, and high school. But even so, it remains trapped in the pattern whereby what you studied in social science class is tested on the social science test, and scientific knowledge is assessed on the science test. Out in the real world, however, there are no subject-specific tests. Instead, people are called on to mobilize all of the knowledge at their disposal to deal with the problems in front of them. This is the kind of study that people ought to be doing at university.

Liberal Arts “Remedial School”

But the fact is that educating students so that they can really think about things is extremely difficult. Apparently the current curriculum guidelines are set at a level that roughly 85% of current teachers can cope with. But there is no chance that 85% of teachers could carry out the kind of true liberal arts education described above. It is more likely that only 15% would be capable of rising to the challenge. The other 85% would be left standing.

In closing, I want to put forward my own proposal for a program that would provide the minimum level of necessary education. If universities could impart this much education to their students, it would be a major benefit for universities, students, and society as a whole.

First, I would make no bones about the fact that the first two years of a university liberal arts course should be treated as a kind of remedial school, with revision the chief objective. I would have students review the fundamentals of arithmetic, Japanese language, Japanese and world geography, going over the ground that they covered in elementary and middle school to make sure they have a solid grasp of the fundamentals.

The remaining two years would cover basic bookkeeping, business English, marketing, and the kind of fundamental knowledge students will need when they start work, dealing with questions of salary, social security and health insurance, and the pension system. Naturally, this education would be academic rather than purely skills-based in order to differentiate the universities from the two-year colleges. It would focus on encouraging students to think about things from multiple perspectives, rather than simple rote memorization.

I would also send students on a longish internship of two months or so during their third or fourth year. Alternatively, company representatives could be invited to give guest lectures at the university. This would enable students to study communication skills to prepare them for life as members of corporate society. Often when you mention communication skills, people imagine someone pouring forth eloquently without pausing for breath or giving the other person chance to get a word in edgewise. But the people taking this course are not aiming to be entertainers–it is enough for them to be able to listen to what their interlocutor is saying, and be able to say what they want to in a logical manner. So let them study that.

The so-called career counseling experts today always give students the same predictable advice. “Aim to be the leader in group discussions,” and “Always start with the conclusion.” But these are not the criteria by which companies really evaluate people. What companies are interested in is whether an applicant is likely to make a good match with the company and its culture. When it comes to hiring, it is simply not the case that a few outstanding people could walk into a job with any company they like. Manufacturing firms, for example, often prefer people who are not particularly gifted speakers. They might not be able to wow people with their verbal skills, but they can be trusted to implement a PDCA (plan, do, check, act) cycle accurately and reliably. Trading companies might go more for pushier types with persuasive skills. At Recruit, they look for confident people who are not afraid to put themselves forward. And the kind of people who get offers from Recruit will generally not get jobs in manufacturing. The vital thing is whether someone looks as though they will fit in.

Companies take the business of evaluating personnel seriously. So even if an applicant is so nervous at interview that he stumbles on his words and can’t express himself well, the company may well end up hiring him anyway if his character seems to be well suited to the company and what he is saying seems to make sense. By spending time in a company as interns, students will have an opportunity to acquire an understanding of this instinctively.

Criticism and pessimism are not my style. I have used the limited space available to outline my own prescription for the ills affecting employment in Japan today. Nothing could make me happier than to hear in a few years’ time that a university had decided to introduce my program and that the campus was full of new energy and students were finding jobs with good companies as a result.

Translated from “Yondai-sotsu mo chūshō kigyō wo mezaseba ii,” Chūō Kōron, February 2011, pp. 34-42. (Courtesy of Chūō Kōron Shinsha) [February 2011]

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