International Civil Engineering Conference "Towards Sustainable Civil Engineering Practice"

Surabaya, August 25-26, 2006

A STUDY OF REVITALIZING CONSTRUCTION INDUSTRY IN JAPAN

Yuka KIRA1 and Shunji KUSAYANAGI2

ABSTRACT: It is said that the most highly-skilled construction engineers were active during the
postwar reconstruction period and/or postwar economic growth period in Japan will retire in and after
2007. In addition, there will be less opportunity for new huge construction projects due to the decrease
of the construction investment. As a result, the young engineers will have fewer opportunities to
acquire skills and experience of construction engineering from the skilled engineers through
construction projects. Then, it is concerned that there will be technology drain because of retirement of
highly-skilled engineers. Some construction companies try to transfer construction skills from
highly-skilled engineers to young engineers, however it is not so simple in fact. In the Japanese
construction industry, there is no established system to utilize efficiently the knowledge and skills of
the retiring professionals. This study tries to develop a system to provide opportunities for the flow of
the experience, knowledge and skills of the senior engineers to the young engineers in order to
revitalize the Japanese construction industry.

KEYWORDS: Surplus employees, Retirement of baby boomers, Three-party system, “The Engineer”,
Non-Profit Organization

1. INTRODUCTION

The construction investment and the number of public works have been decreasing due to financial
difficulties in Japan since the economic bubble burst. Figure 1 shows “The amount of investment and
the number of employees in the Japanese construction industry”. The growth rate of the amount of
construction investment per year was increasing at an annual average rate of about 15 % from 1960
until the first oil crises occurred in 1973, and it is thought that construction industry was rapidly
growing business in that period. Then, the amount of investment had almost no variation after the first
oil crises until “the bubble economy” started in 1986. This period is called “the ice age of construction
industry”.

The amount of investment increased rapidly at the bubble economy period, however after the bursting
of the bubble economy, the amount of investment was almost equal to the amount of investment
during “the ice age of construction industry”. It means that basic infrastructures required for living
were almost developed in the period of “the ice age of construction industry”. Then, “the ice age of
construction industry” was the turning point of Japan from a developing country to a developed
country. In fact, GDP (gross domestic product) per capita of Japan was ranked number one in the
world in 1987.

1 Research Associate, Dep. of Infrastructure Systems Engineering,, Kochi University of Technology, Kochi, Japan
2 Professor, Dep. of Infrastructure Systems Engineering, Kochi University of Technology, Kochi, Japan

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billion JPY thousand persons

90,000 9,000
Bubble economy
80,000 8,000
The ice age of
70,000 construction industry 7,000

60,000 6,000

50,000 5,000

40,000 4,000

30,000 3,000

20,000 2,000

10,000 1,000

0 0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Year
The amount of investment in construction
The number of enployees in construction industry

Figure 1. The amount of investments and the number of employees in Japanese construction industry[1]

2. ISSUES IN CONSTRUCTION INDUSTRY IN JAPAN

2.1 ISSUES OF REDUNDANT WORKERS

When Japan shifted to a developed country in 1970s, the amount of investment in construction
industry was about the same for last 30 years, because the growth ratio usually does not vary
significantly in a developed country. As referred to above, the average amount of investment in 2000s
is nearly equal to the values of 1970s, however, the number of employees in 2000s are more than that
of 1970s as shown in Figure 1. It means that the output per employee in construction industry in 2000s
is decreasing in comparison with the 1970s’ values. Then, it is considered that the number of
employees in construction industry is not optimum in 2000s.

The number of surplus employees can be calculated by comparing with the average number of
employees in 1970s and 1980s. As Figure 2 shows, the average amount of investment per employee
from 1973 to 1986 was about 11,000,000 JPY. It increased during the bubble economy, however it has
been decreasing since the collapse of the bubble economy. When the bubble economy has burst in
1993, the amount of construction investment per employee was about 12,000,000 JPY. At present it is
under 10,000,000 JPY, so it is thought that the construction industry is overstaffed. The amount of
construction investment in 2005 (about 52 trillion JPY) divided by the average investments per
employee in 1970s (about 11,000,000 JPY) equals about 4,700,000 persons. The number of employees
in construction industry in 2005 was about 5,700,000 persons. So, the numbers of surplus employees
are about 1,000,000 persons.

2.2 REDUCTION OF THE NUMBER OF EMPLOYEES BY RETIRED BABY BOOMERS

It is afraid that baby boomers who were born from 1947 to 1949 will start to retire from 2007, then the
number of retired baby boomer will be about 7,000,000 persons in all industry. The number of
employees in construction industry increased from 1972 to 1997, however it decreased after 1998 as
shown in Figure 1.

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thousand JPY
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Year
The amount of investment in construction per employee

Figure 2. The amount of investment per employee in construction industry in Japan[1]

Figure 3 shows “The number of employees by age group in construction industry” and Figure 4 shows
“The ratio of employees by age group in construction industry”. Compared with data by age group in
1970s and in 2005, the numbers of employees aged 25-59 years old were almost the same, however
the number of employees aged under 24 years old are decreasing and the number of employees over
50 years old are increasing. Then, the ratio of employees under 24 years old was about 10% and the
ratio of employees over 50 years old was about 20% in 1970s.

On the other hand, the ratio of employees under 24 years old is about 5% and the ratio of employees
over 50 years old including baby boomers is more than 40% in 2005. In short, it is thought that the
problem is not the large number of employees over 50 years old, but the high ratio of employees over
50 years old. In 2005, the numbers of employees over 55 years old are about 1,600,000 persons. If
more than half of employees over 55 years old in 2005 will retire after 2007, it offsets the 1,000,000
redundant employees as mentioned in the 2.1.

140
group
group

120
group
age

100
age
age
(ten thousands persons)
byby
employees

80
employees

60
of of

40
number
ratio of
number

20
The
TheThe

0
1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Year
15-19 yrs 20-24 yrs 25-29 yrs 30-34 yrs 35-39 yrs
40-44 yrs 45-49 yrs 50-54 yrs 55-64 yrs over 65 yrs

Figure 3. The number of employees by age group in construction industry[1]

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KIRA and KUSAYANAGI

100%

group
agegroup
80%
byage
60%
employeesby
ratioofofemployees

40%

20%
Theratio
The

0%
1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005
Year
15-19 yrs 20-24 yrs 25-29 yrs 30-34 yrs 35-39 yrs
40-44 yrs 45-49 yrs 50-54 yrs 55-64 yrs over 65 yrs

Figure 4. The ratio of employees by age group in construction industry[1]

2.3. ISSUES OF TRANSFER TECHNOLOGY

If baby boomers will start to retire from 2007, it is possible to solve surplus employees issue on the
condition of no new employment in the industry. However, there will be the issue of brain drain from
the industry. The period when baby boomers played an important role in construction industry until
1980s was significant in developing construction technologies and infrastructures. One of
technological issues is that baby boomer engineers did not have enough opportunities to transfer their
skills, knowledge and/or construction technologies regarding infrastructure development to young
engineers and workers.

‘NIKKEI CONSTRUCTION’[2] published an article based on investigation including questionnaire

survey about brain drain in the construction industry. One of the questions is “Is it possible to continue
to perform tasks with the remaining number of employees after the baby boomers will retire as well as
before?” About 70% of major general contractors and about 25%of consulting firms answered “No,
there will be shortage of qualified manpower”, because there was no opportunities for the baby
boomer engineers to transfer technologies and skills to young engineers and workers until their
retirement.

The report of Special Committees of JSCE (Japan Society of Civil Engineers) in 2004 [3] mentioned
that there were some reasons of not transferring construction technologies, technical know-how and
etc.; e.g. 1) loss of chance to transfer construction technologies by reduction of public works, 2)
technological drain by depending on manuals and computers, 3) technologies drain by outsourcing, 4)
shortage of engineers who have general techniques and skills, 5) decline in the basic academic ability
of graduates and so on. And, it indicated that there are some ways to transfer technologies efficiently;
e.g. 1) adoption of the new system that engineers can have experiences through practical businesses in
collaboration with industrial and governmental organizations, 2) promoting the mobilization of
engineers, 3) establishment of organizations such as training schools to provide technical supports
and/or to educate young engineers and workers by utilizing skilled engineers.

The most important issue regarding retirement of baby boomers is the technological drain. In addition,
the issue of technology drain will be occurred from shrinking of the labor force by the falling birthrate,
the aging population and reduction of students in the science and engineering majors. In other words,
it is matter that many of old skilled engineers will retire before young engineers and workers have
grown up. It will become a significant issue to cultivate young engineers and workers and to utilize

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skilled engineers who will retire since 2007.

3. THE CHANGE FROM TWO-PARTY SYSTEM TO THREE-PARTY SYSTEM

There are other issues in construction industry, such as bid-rigging (Dango), golden parachutist,
opaqueness of public projects execution and so on. These issues have decreased public trust in
construction industry. In addition, there are social changes like globalization, the falling birthrate, the
aging population and so on. Therefore, it is necessary to change social systems concerned with
infrastructure development projects in order to respond above issues and social changes.

At present, construction projects in Japan are executed by two-party system. The two-party system is
made up of owners and contractors base on “principle of faith and trust”, so there are little
transparencies of projects executions. If scandals in construction industry will be occurred, peoples
begin to have strong distrust of construction industry. In order to restore the damaged public's trust, it
is important to improve transparency in projects execution. The three-party system that is made of
“Owner”, “Contractor” and “Consultant (The Engineer)” is needed to ensure transparency, improve
capacity of engineers, support industrial progress and/or improve construction technologies. In foreign
countries, consulting engineers or consulting companies play the role of “The Engineer” as both
independent and neutral third party.

On the other hand, consulting companies in Japan are positioned as “helper for Owner”. Their works
are not consulting but just helping the owner to design. The system of additional party “The Engineer”
should be established in order to build up the three-party system. However, the relation between
owners and consulting engineers is like homage, because of Japanese general condition of construction
contract. Academic experts at universities or research institutes are able to be “The Engineer” in
foreign countries. So, as one of the ways to build the three-party system, it has been proposed to
organize a group of experts of professional engineers who have construction technologies and/or
technical knowledge and so on regarding infrastructure development with a central focus on academic
experts at universities or research institutes. It would be a way to provide opportunities for skilled
retirees in order to be active by making use of their experiences and skills.

4. IMPROVEMENT OF AWARENESS ABOUT NON PROFIT ORGANIZATION

4-1. LIFESTYLE OF BABY BOOMERS AFTER RETIREMENT

Elder Business Development Division, HAKUHODO Inc., reported that research on baby boomers’
lifestyle after retirement. The percentage of respondents who “want to work, voluntarily and enjoy
their hobbies after retirement” is 43 %. The percentage of respondents who “want to volunteer and
enjoy their hobbies” is 22% as shown in Figure 5. Then, about 60% of the respondents who wanted to
work wanted “part-time work related to past experience” as shown in Figure 6. Furthermore, more
than 60% of the respondents answered “want to play a social role even after retirement”. This suggests
that a lot of people want to involve in work and to feel useful for society even after retirement.

NRI (Nomura Research Institute Ltd.), conducted questionnaire survey about new life after retirement
of 55-59 aged baby boomers in 2005. About 80% of persons wanted to keep on working after
retirement. One of the reasons for intending to work is monetary reasons like earning pocket money as
shown Figure 7, however they do not hope to make the same amount of salary as used to be in active
service. Because it seems that they hope to receive income within a range of 100,000 JPY to 300,000
JPY per month by questionnaire. In addition, this report mentions that about half of respondents hope
to receive monetary rewards, have private time and be useful to use their expertise and know-how

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1% 5%
16% job, volunteering & hobby 9%
not full-time work and
job & volunteering job used past experience
2%
job & hobby not full-time work and
43% new job
job only
volunteering & hobby 26% full-time work and
22% volunteering only 60% job used past experience
hobby only full-time work and new job
nothing to want to do
1% 1%
14%

Figure 5: Question “What do you want to do Figure 6: Question “How do you want to work
after retirement? ” [4] after retirement, if you answered “want to
work” at above question?” [4]

not to get put of shape and

4% 2%1% mind
7% 23% economical reasons

for motivation in life,

11% challenge
not like to stay indoors

want to be useful for

13% society
22% earn pocket money

for keeping good relations

17% with workers at office
nothing to do

Figure 7: Question “Why do you want to

work after retirement?” [5]

Therefore, there are lots of people who want to work, to be useful for society, to have their own time,
to earn a little and/or to be valued at their true worth after their retirement. It indicates that it is
possible to get retired skilled engineers for the service of “The Engineer”.

5. INTRODUCTION OF “KOCHI INFRASTRUCTURE SYSTEM RESEARCH CENTER”

5.1. SUMMARY OF “KOCHI INFRASTRUCTURE SYSTEM RESEARCH CENTER”

“Kochi Infrastructure System Research Center” is a non-profit organization established in June, 2004.
The summary of this center is outlined below.

5.1.1 The Aims of Establishment

The global situation has been changing rapidly as the 21st century approaches. There is a real need to
change various systems that turn the wheels of society in Japan. Technical innovation and technology
development regarding infrastructure development are necessary with the changes of the social
systems. This incorporated nonprofit organization is comprised of researchers and engineers who have
highly-specialized knowledge with a central focus on researchers in Kochi University of Technology.
The aim of establishment of this organization is that researchers and engineers with specialized
experience contribute in improving the society by contributing to the social systems as a neutral third
party from the professional view. Then, activities of organizations are, but not limited to, planning,
promotion, evaluation and proposal of projects to respond adequately to the demands of the
communities, the local governments and the central government.

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5.1.2 Examples of Projects

Projects handled by this NPO under consulting service functions are shown as below.
1) Study of Japanese Construction Management Contract: To establish general conditions of
Construction Management Contract through content analysis between American and English general
condition of Construction Management Contract and actual condition survey analysis about
Construction Management Contract in Japan.
2) Investigation of boarding school system in the backwards communities: To improve the educational
environment in the backward communities and to establish new education system based on boarding
school systems.

6. CONCLUDING REMARKS

The amount of construction investment in Japan is decreasing, but the number of employees is still
high since bubble economy burst. It is considered that there are 1,000,000 surplus employees. The
issue of redundancy of human resources will be resolved by baby boomer’s retirement, but baby
boomer’s retirement will cause new issues such as no transfer of technologies and brain drain from the
industry. In addition, infrastructure development projects must respond to social changes. The
three-party system would be appropriate to address the new social changes in the existing systems. In
the existing Japanese contract system, it is difficult for consulting firms to play the role of “The
Engineer”. The professional groups such as NPO comprised of experts and skilled retired engineers
can play the Engineer’s role in fair and/or neutral way. Then, NPO is able to utilize retired engineers
and cultivate young engineers as organization to provide technical supports and/or educate.

7. REFERENCES

1. Ministry of Internal Affairs and Communications, “Labour Force Survey”, 1960-2006.

2. Yuichi ASANO, Shigeru SEGAWA and Takeo HARA, NIKKEN CONSTRUCTION 2005.11.11
issue, p.p.32-50, 2005.
3. Japan Society of Civil Engineers (JSCE) Special Committee on Chairman’s Suggestion, “Report
of the Special Committee on Chairman’s Suggestion 2004 -For keeping and developing of
technology of civil engineers-”, 2005.
4. Elder Business Development Division, HAKUHODO Inc., HOPE Report XIX “Investigation on
Lifestyle after Baby Boomer’s Retirement”, 2005.
5. Hirohumi OOMORI, Nomura Research Institute Ltd., NRI Report “Paradigm Shift of Corporate
Community by Baby Boomer’s Retirement”, 2005.
6. Shunji KUSAYANAGI, “Build up New Project Execution System for up Grading Transparency of
Construction Industry in Japan”, Journal of JSCE, No.714 VI-56 pp221-pp232, 2002.

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