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About this book

This book reappraises the Japanese employment system, characterized by such practices as the periodic recruiting of new graduates, lifetime employment and seniority-based wages, which were praised as sources of high productivity and flexibility for Japanese firms during the period of high economic growth from the middle of the 1950s until the burst of bubbles in the early 1990s. The prolonged stagnation after the bubble burst induced an increasing number of people to criticize the Japanese employment system as a barrier to the structural changes needed to allow the economy to adjust to the new environment, with detractors suggesting that such a system only serves to protect the vested interests of incumbent workers and firms. By investigating what caused the long stagnation of the Japanese economy, this book examines the validity of this currently dominant view about the Japanese employment system. The rigorous theoretical and empirical analyses presented in this book provide readers with deep insights into the nature of the current Japanese labor market and its macroeconomic impacts.

Table of Contents

Frontmatter

Chapter 1. Overview

Abstract
This chapter examines some basic labor statistics that will help one better understand the changing nature of the Japanese labor market. After briefly reviewing the history of the labor market since World War II, we analyze in depth the secular increase in the unemployment rate during the 1990s, which was the fundamental problem of the Japanese labor market during the so-called lost decades. We find that labor flows and unemployment spells play an important role in the long-run increase in the unemployment rate. Further, we examine the issue of the Japanese employment system, characterized by a long-term employment relationship and a steep wage-tenure profile. It is shown that, in the long-run, job-worker attachments have become weaker and wage growth within a firm has been stagnant. The chapter goes on to provide a bird’s-eye view of a recent crucial change in the Japanese labor market: the rising proportion of non-regular workers. This chapter also summarizes the findings of the subsequent chapters and discusses some policy implications of this book as a whole.
Akiomi Kitagawa, Souichi Ohta, Hiroshi Teruyama

Theory

Frontmatter

Chapter 2. Flatter Wage Profiles and Reduced Lifetime Employment: A Simple Formalization

Abstract
This chapter explores the implications of possible bankruptcies of firms for their own wage schemes and the structure of labor market, using a two-period general equilibrium model. The bankruptcy risk flattens a wage profile of each firm, weakening its incentive effect, thereby making room for efficiency wage to be used as a supplementary incentive device. The use of the efficiency wage, in turn, stratifies the labor market into the primary one, in which job rationing is observed, and the secondary one, in which job rationing is not observed. Substantial utility differential emerges between those who have luckily found a job in the primary market and those who have not, although there is no difference in their innate abilities. This differential widens, as bankruptcies become more likely. Moreover, the dual structure of the labor market and the entry decisions of firms render the employment size in the primary market too small to attain a social optimum.
Akiomi Kitagawa, Souichi Ohta, Hiroshi Teruyama

Chapter 3. Ranking and Long-Term Unemployment in a Model with Efficiency Wages

Abstract
This chapter considers the long-run consequences of ranking job applicants on the basis of their unemployment durations by using a general equilibrium model, in which the wages paid by firms not only motivate their employees but also induce jobless workers to preserve their employability. Ranking and long-term unemployment become actual when the cost of establishing a new firm is so large that firms cannot pay high wages to their employees. By subsidizing newly established firms, the government can guide the economy to a more efficient equilibrium, in which every job seeker can find a new job by experiencing one period of unemployment, and thus firms’ distaste for the long-term unemployed is effectively nullified.
Akiomi Kitagawa, Souichi Ohta, Hiroshi Teruyama

Evidence

Frontmatter

Chapter 4. Testing the Dual Structure of the Japanese Labor Market

Abstract
This chapter empirically investigates the dual structure of the Japanese labor market by considering employment status as an expression of duality. The data are obtained from a series of micro surveys on employment, conducted in the Tokyo metropolitan area during 2002–2014. The first half of this chapter focuses on empirical arguments about the contrasting properties of wage profiles between regular and non-regular workers , and the flattening of wage profiles of the former. The second half examines the employment status sluggishness, which is defined by the effect of the employment status of the previous job on the current one. In addition, we examine the possibility that the probabilities of a worker’s allocation to a certain sector are determined at their time of entry into the labor market. These so-called first-job effects are defined by the effect of the employment status of the initial job on the current one. The estimated results reveal several facts regarding the new phase of the Japanese dual labor market. (1) While regular workers’ wages rise with years of tenure and external experience, only the latter influences non-regular workers’ wages. (2) The wage increases based on experience are of a similar magnitude across employment statuses, except for female regular workers; firm-size and educational-background premiums exist only in the regular workers’ wages. (3) The slopes of regular workers’ wage-tenure profiles have remained stable for more than 10 years since the early 2000s. (4) The quantitative impact of the first-job effects is not very substantial. The serially dependent structure of employment status has a greater influence on the rising labor market segmentation.
Akiomi Kitagawa, Souichi Ohta, Hiroshi Teruyama

Chapter 5. Duration Dependence of Job-Finding Rates in Japan

Abstract
This chapter examines the negative duration dependence of the job-finding probability in Japan by using officially collected data on individuals from the Labour Force Survey for the period 2003 to 2012. Because the survey has limited information on unemployment duration, a survival analysis is difficult to apply. We try to resolve this problem by adopting the bivariate probit estimation. We use information on the labor market status of the previous year to construct a proxy variable for the long-term unemployment experience. This variable is used to estimate the job-finding rate. A long-term unemployment equation is simultaneously estimated to deal with the problem of unobserved heterogeneity. After controlling for unobserved individual heterogeneity of workers by using a bivariate probit specification, we find that long-term unemployment has a negative impact on the job-finding probability for both men and women. This confirms the fact that the job-finding probability has a negative duration dependence on unemployment in the Japanese labor market. On average, unemployment for a year or more reduces the job-finding probability by about 0.075 (roughly by half).
Akiomi Kitagawa, Souichi Ohta, Hiroshi Teruyama

Backmatter

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