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  5. Human Capital Formation in Postwar Japan : “failures” and reforms

2009 Vol.2
Human Capital Formation in Postwar Japan : “failures” and reforms


The human capital formation system in Japan has inherent “failures”, such as the education system functioning as a disparity amplifier and the lack of effective transition mechanisms for students to become business people. However, from the high-growtheconomic period up to the 1980s such failures did not surface, as education and high economic growth formed a virtuous cycle. In this cycle, Japanese companies had actually functioned like schools where young employees were trained to become experts,although such training sessions were not programmed into the company life.
However, since the early 1990s, following the burst of the bubble economy, Japan entered into a low economic growth period and companies were forced to face various structural issues. These led to the destruction of the virtuous cycle between education and economic growth, and even the risk of it spinning the other direction, as a vicious cycle emerged. Thus, this change brought the “failures” of human capital formation gradually into the light. For example, in general the lower expected rate of growth curbed demand for higher education, which resulted in a clear awareness of stratification in academic and educational achievement. Furthermore, the increased number of “part-time job-hoppers” (Freeter) and “people not in education, employment or training” (NEETs), revealed the frailty of the transition system from school to business circles for young people.
The educational administration has not sufficiently addressed these “failures” in human capital formation, and companies no longer have enough strength to function also as schools. Accordingly, it has become necessary for the government to embark on solving the problem in a positive manner. Necessary policy measures include; reinforcement of elementary and secondary education, allocation of educational resources to help those with lower academic skills improve, and the readiness of a job training system for post-compulsory education, in order to enhance the occupational significance of education.