AlwaysFree: Foreign Workers Shun Japan As Yen's Value Plunges

• Average wage in dollar terms falls 40% over 10 years

According to Nikkei Asia’s article published on October 16, 2022, the yen's sharp drop against the dollar and other currencies is making Japan less attractive to foreign workers, at a time when the average wage of Japanese workers in dollar terms has fallen 40% over the past decade.

The resultant narrower pay gap with emerging Asian nations has made it particularly difficult for Japan's construction and nursing-care industries to hire the workers they need.

A Tokyo-based nonprofit that trains Vietnamese construction engineers wishing to work in Japan in 2019 received five times more applications for a course than the 50 slots it had available. This autumn, MPKen, the NPO, does not expect to fill the same 50 slots for a new course.

The main reason fewer workers are interested in the training program is the yen's sharp depreciation. The Japanese currency over the past two years has fallen more than 20% against the dong. While foreign construction engineers in Japan have been earning an average monthly wage of about 200,000 yen ($1,375) in recent years, skilled workers in the same sector in Vietnam can now earn about 25 million dong (150,000 yen) a month, thanks to wage increases of 10% to 20% there.

"Japan's status as a prime work destination is eroding fast due to a narrowing wage gap," said Be Minh Nhat of MPKen.

A 23-year-old Filipino woman who this spring began to work at a nursing-care home in Gunma Prefecture, northwest of Tokyo, sends 30,000 yen, 15% of her monthly wage, to her family back home. She now worries about her remittances' plummeting value.

"As the yen's value declines, more workers head to Australia and other countries where wages are higher and English is spoken," said a senior official at the Association of Philippine Licensed Agencies for Technical Internship Program, an entity that arranges overseas jobs for Filipino workers.

Wages in Japan have fallen sharply in dollar terms. If converted at September exchange rates, the average wage of Japanese workers in fiscal 2020 and 2021 was 40% lower than in fiscal 2012.

Wages in Vietnam and the Philippines are still low, compared to those in Japan. If the dollar-based average pay in the Japanese nonmanufacturing sector is indexed as 100, wages in Hanoi and Manila are 20 to 30. But the wages of construction engineers and nursing-care workers have already risen to 50 to 70 in both cities.

Wage levels of nonmanufacturing sector in Singapore and Hong Kong have already exceeded those of Japan.

According to a Japanese staffing industry adage, the flow of workers to Japan starts to drop when the source country's per capita gross domestic product tops $7,000. In addition, once these nations' per capita GDP surpasses $10,000, they begin receiving workers from elsewhere. This is what Japan experienced when China reached these milestones.

Now Vietnam appears to be on a China-like trajectory. Its per capita GDP is expected to rise from around $4,000 to $7,000 in about five years. But the yen's sharp depreciation could lower the threshold at which workers choose to stay home.

Japan had 1.72 million foreign workers in 2021, accounting for 2.5% of its working population and 2.5 times more than a decade earlier. Chinese used to constitute the largest group but in 2020 were replaced by Vietnamese. The number of workers from less developed countries such as Nepal is increasing, but Japan's attractiveness will continue to diminish as the yen weakens and wage levels rise elsewhere.

Labor shortages are particularly acute in Japan's construction sector. "Work at building sites will come to a stop unless wages improve," said Shogo Iwata, head of the Japan Reinforcement Contractor's Association. Foreign workers already account for 20% of reinforced steel specialists. The Japan International Cooperation Agency estimates that an additional 5 million foreign workers will be needed by 2040 if Japan is to reach the government's economic growth target.

Many foreign trainees and students who come to Japan to acquire new skills often engage in minimum-wage work. The government has launched a new program to offer foreign workers the same wages as their Japanese counterparts, but many companies turn to technical trainees to keep costs down. A better system to lift foreign workers' wages is necessary as their pay is 25% below the national average, one expert said.

Japan needs to do more than raise wages to attract workers. The average foreign worker in Japan pays income tax of 10%, a higher rate than many Vietnamese and Filipinos pay back home.

Fourth Valley Concierge, a Tokyo staffing service, in September opened a facility in Nepal to offer Japanese language courses to nursing-care and other workers. It also plans to set up a call center in Japan to give foreign residents advice on living in the country.

"The era of foreign workers coming to Japan without our doing anything will end soon," said Yohei Shibasaki, founder and CEO of Fourth Valley. "Now we have to change our mentality and learn to go out and seek workers from abroad."

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