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Navigating a Volatile IT Labour Market: Hirings, Firings and the Rise of AI

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Multiple contradictory trends can currently be seen around technology and the labour market. Warnings have been issued that automation and the recent advances in artificial intelligence (AI) will make much of the workforce redundant. Though that danger may become a reality in the future, in place of the predicted ‘job apocalypse,’ labour shortages are now a much larger issue.

Meanwhile, in the tech sector itself, and amongst IT workers in the wider economy, there are also seemingly contradictory trends of both layoffs and high demand.

Japan has specific workforce challenges due to its demographics, but it is no longer such an outlier. Many nations have joined it on the low birthrate and ageing population path, while the country has begun accepting foreign workers at a faster rate than many thought likely. There is yet another paradox: despite its reputation as a high-tech leader, and possession of some cutting-edge firms and solutions, parts of corporate Japan and larger chunks of its bureaucracy remain wedded to out-of-date IT systems (and even some pre-IT systems). Though this does naturally create opportunities in terms of the potential for digital transformation (DX).

Drivers and divergence

Two drivers of the current volatility in IT employment are a post-pandemic realignment and a shift of resources towards AI. Most tech firms saw demand for their services leap as people were forced to spend more time at home when Covid struck, and boosted their headcount accordingly. As restrictions lifted, the attractiveness of some of those services declined sharply; combined with economic uncertainty, and the last two years saw layoffs across the tech sector, a trend that has continued into 2024.

The headline-grabbing job losses have happened at some of the biggest names in tech, and been centred in the United States, though there have been big cuts in firms in the UK and elsewhere. It has been noted that layoffs continued at many of Silicon Valley’s big players even as they posted higher revenue and profits. Though the redundancies are mostly voluntary, some Japanese corporations have also announced headcount trims this year as stock prices and earnings have soared. This is though seen as a separate trend driven in part by increased pressure from the Tokyo Stock Exchange and investors for more efficient use of capital and better returns.

Swings and roundabouts

There is the possibility that Japan and other countries could benefit from there now being a cohort of skilled IT personnel out of work in the US and prepared to look further afield for opportunities. The weak yen remains an issue but wages are rising in Japan and living costs remain far more reasonable in Tokyo than in many other major cities. And that is without factoring in the quality-of-life bonus.

Japan’s main trade union federation Rengo reports that this year’s ‘shunto’ spring negotiations have delivered an average wage rise for its 7 million members of more than 5%, the highest in three decades. Meanwhile video game companies Capcom and Square Enix lifted salaries by 25% and 10%, respectively, numbers unimaginable just a few years ago.

Threats and opportunities

The shift towards AI and other advanced tech is both creating new roles and replacing others. AI was cited by several firms as one of the factors behind the recent rounds of layoffs among IT personnel, though the picture is nuanced. Apple announced in February that it was abandoning its decade-old electric car project, though most of the 2,000 workers involved are to be shifted to generative AI roles.

Companies will continue putting resources into machine learning. Around 80% of firms surveyed by consulting and accounting powerhouse KPMG are planning to boost investment in AI by more than half this year, while venture capitalists sunk more than $36 billion into generative AI startups last year.

But humans are not surplus to requirements quite yet. The working-age employment rate is at an all-time high in around half of OECD countries, and joblessness is averaging below 5% across the rich world, also a record. Labour shortages will remain acute in Japan, where the government is projecting a shortfall of 2.3 million digital workers by 2026.

Keeping skills up to date is more important than ever during this period of rapid change and transformation. Those who can add value by leveraging the development, implementation and maintenance of new tech solutions will clearly be at a major advantage as companies and their workforces adapt. Specialised skillsets in fields including cybersecurity, cloud computing and big data will be in high demand, as well as in creativity and emotional intelligence – areas where the machines still come up short.

By: Gavin Blair

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