Human Resources Strategy from a Regional Perspective

Faculty Fellow, RIETI

Recent heated debates on human resources strategy

There is growing interest in how Japan should develop "global" human resources. In a newspaper I read recently, for example, there were two articles on this subject: one about a newspaper-sponsored symposium on global-oriented human resources and the other on the education reform efforts at universities and technical colleges that aim to produce more globally-minded engineers. Such trend of course impacts the more general debate on university education reforms, and it's not something that I, as someone working at a university, can ignore.

One issue I have noticed about the way the mass media handles this subject is that, as on any other subject, it tends to report on human resources strategy issues from the viewpoint of large corporations, which lacks the perspective that can be found outside of large cities, and of medium-sized enterprises that are working tenaciously in rural towns. Therefore, I would like to discuss a few points on this subject from a regional perspective.

Why developing human resources at the regional level is important

My colleagues and I recently conducted research in which we tracked how the cross-prefectural gap in the labor force quality has shifted from 1970 to the present, and analyzed the contributing factors. For this, we used the government's population census data and an index that was devised to compare the labor force quality across prefectures, concurrently taking into account attributes such as the workers' gender, educational backgrounds, age, and the industries of employment.

We revealed that the main sources of the cross-prefectural difference in the labor force quality in 1970 were both the workers' educational backgrounds and their industries of employment. However, we found that, in the following 40 years, the educational backgrounds remained as the main factor while the regional industrial location factor has declined in significance.

We also assessed the impact of the migration of young workers to richer prefectures on the local labor force quality and the total amount of human capital, which takes into account the quality of the workers. Although the migration accelerated the tendency to concentrate in terms of the total amount of human capital to areas already rich in human resources, especially the Tokyo metropolitan area, no such tendency was observed in terms of labor force quality. This led us to conclude that the ability of each region to develop human resources is the key factor in determining the quality of its supply of human resources. That's the first point I want to emphasize. If you are interested in knowing more about this issue, refer to our discussion paper, "How Did the Cross-Prefectural Difference of Human Capital Change in Japan?" (RIETI Discussion Paper series 13-J-058) and the accompanying non-technical summary (NTS, available only in Japanese).

Correctly assessing the status of the supply of local human resources is necessary

As discussed above, if you look at the overall situation of the nation, there is no denying that the cross-prefectural migration of young workers has resulted in the concentration of the labor force in large cities. There are exceptions to this, however. Take Nagano prefecture, for example. This is where my university is located, and, from the way I referred to it at the beginning of the NTS, readers may have gained the impression that it was cited as a typical example of a rural prefecture. In fact, a closer look at the collected data shows that Nagano is a very exceptional case.

Figure 9 in the discussion paper contains an index showing the effect of the young workers' migration on the total amount of human capital, which confirms that human resources generally have been moving from the regional areas to the urban areas, but this trend does not apply to Nagano, where the generation that turned age 20 in the latter half of the 1970s saw net outflows from the prefecture but then saw net inflows of the next generation 10 years later. At a time when the overall population of Japan has begun falling and which is feared to be hurting regional communities, having the ability to attract human resources can be the region's strength. (Net inflows of human resources are defined as the number of supposed quality-adjusted labor supply from the people who attended junior high school in a certain region in a certain year without migration being surpassed by the number of actual quality-adjusted labor supply of the same generation in the region 20 years later. Net outflows of human resources are defined as the latter being surpassed by the former. Both net inflows and net outflows have nothing to do with the absolute number of the generation living in the region.)

The second point that I want to emphasize is that it is important to analyze each region's characteristics in terms of the labor force supply, and to find and enhance the strength of such characteristics. Most people, even the locals, would be surprised when I tell them that the labor force flowing into Nagano is larger than that flowing out, as they have long misperceived this prefecture to be one with net outflows of human capital. This is a common misperception that occurs when relying too much on an impression based on past experiences without conducting statistical analysis. If you only focus on the outflow?for example, calculating the number of high school classmates who had moved to Tokyo to attend college and continued to live there to work?you may misperceive the situation. (If calculated in this way, all prefectures in Japan would become net-outflow prefectures in terms of human resources.) Both outflows and inflows need to be taken into consideration to obtain net figures. If the advantages of the prefecture are not accurately recognized, their factors will not be identified, thus losing the opportunities to exploit the regional advantages. This could undermine the opportunities to draw public attention and attract more human resources to the prefecture.

Human resources strategy of regional medium-sized companies

Although the situation of the local supply of human resources is not generally understood well, this does not mean that regional companies conducting global business are doing nothing about the situation. As an example, I can mention the case of a company that started from a small factory just before World War II in Nagano prefecture and eventually became a large listed company. I heard of this episode from a person who had played an important role in the company during its startup period. He told me the difficulty that the company faced in recruiting highly-educated employees during the startup period and how he had traveled around the nation to recruit employees. Presently, there are many regionally-based medium-sized companies operating in the globalized business environment. These companies have already begun actively recruiting human resources overseas.

I recently served as the chairperson of a symposium sponsored by the Nagano Employers' Association which focused on corporate strategies for the development of human resources. The discussants included two presidents of medium-sized companies based in Nagano. One of the presidents runs a medium-sized company that manufactures industrial equipment. The other president runs a medium-sized company developing software systems on a consignment basis. Although they operate in different fields, both companies promote globalization in recruiting human resources as well as business operations. As they are both owner-managers, they share the belief that there should be a particularly strong emphasis on developing human resources to avoid the negative effects resulting from the companies being run by the owner-managers. I found their words to be encouraging. This is in stark contrast with major Japanese companies, which appear to have no surplus resources allocated for the development of human resources in light of the prolonged slump following the bursting of the bubble economy.

Meanwhile, when asked about their concerns, they unanimously agreed that in comparing human resources recruited domestically with those recruited from overseas, they find that the former is not up to standards in its global human resources strategy. This appears to resonate with the recent criticism that Japan's higher educational institutions are not sufficiently meeting the needs of society in terms of developing global human resources, to which I referred at the beginning of this column. Although medium-sized companies are still strongly motivated to develop human resources within their respective companies, their domestic employees seem to lack a challenging spirit, intellectual curiosity, and the flexibility and inner strength necessary for global competition in different cultures. I think this relates to the very heart of education. At the same time, I wonder whether fast-track global human resources development programs currently being devised at Japanese universities can live up to the expectation. I welcome the readers' views and opinions on this point.

October 22, 2013

October 22, 2013