Dismissal Regulation in Japan

The purpose of this chapter is to take a closer look at the role of legal institutions and their impact on human capital accumulation using the Japanese case of dismissal regulation as an example. In the Japanese labor markets, so called the Doctrine of Abusive Dismissal has been thought to be responsible for controlling dismissal behaviors. With careful examination of court cases and statistics, this chapter shows, the Doctrine has grown out of industrial conflicts in the past and it has been useful in resolving disputes revolving around mass layoffs and, by fostering communication between management and labor regarding firms' business conditions, helped to smooth the rapid adjustment of employment in Japan. In other words, in order to achieve a relationship of mutual trust between employer and employees, the Doctrine created social norms encouraging the two sides to reach agreement within the workplace, firm, or organization. This guidance provided by the Doctrine contrasts with the direct constraints imposed on the contents of labor contracts by, for example, the Labor Standards Act.

Trends in Worker Displacement Penalties in Japan: 1991-2005

We examine the period from 1991 to 2005 to document the effects of a changing Japanese labor market on trends in the cost of job change. During this period, job change penalties and the extent to which they were age-related grew. Evidence is also found of a diminishing specificity in human capital (in industry, occupation and firm size) for job changers in the Japanese labor market. As might be expected, older workers and workers leaving the largest firms suffered the largest wage losses from job change. Older workers were also harmed more by involuntary job separations. In percentage terms, young females have larger wage losses than young males but older females have smaller losses than older males. This pattern is masked in considering only the overall effect of gender on the cost of job change.Displacement

Vacancy Size and Offered Wage: A Source of Search Friction in The Japanese Labor Market

Behind rising natural rate of unemployment, they often point out the decline in matching efficiency of the labor market. We empirically examine the cause of matching friction based on the theory of directed search model such as Burdett, Shi and Wright (2001). From rich micro data on vacancy size and wage variation of job changers in Japanese labor market, we observe the negative relationship between vacancy size and offered wage, which show the existence of search friction, not in the whole labor market but in some particular unskilled markets, especially those of clerks and production workers.Search friction, matching, directed search, vacancy, wage offer, Japan

Long-term Employment and Job Security over the Last Twenty-Five Years: A Comparative Study of Japan and the U.S.

Taking advantage of a recent relaxation of Japanese government's data release policy, we conduct a cross-national analysis of micro data from Japan's Employment Status Survey and its U.S. counterpart, Current Population Survey. Our focus is to document and contrast changes in long-term employment and job security over the last twenty five years between the two largest advanced economies. We find that in spite of the prolonged economic stagnation, the ten-year job retention rates of core employees (employees of prime age of 30-44 who have already accumulated at least five years of tenure) in Japan were remarkably stable at around 70 percent over the last twenty-five years, and there is little evidence that Japan's Great Recession of the 1990s had a deleterious effect on job stability of such employees. In contrast, notwithstanding its longest economic expansion in history, the comparable job retention rates for core employees in the U.S. actually fell from over 50 percent to below 40 percent over the same time period. The probit estimates of job loss models in the two nations also point to the extraordinary resilience of job security of core employees in Japan, whereas showing a significant loss of job security for similar employees in the U.S. Though core employees in Japan turned out to have weathered their Great Recession well, we find that mid-career hires and young new job market entrants were less fortunate, with their employment stability deteriorating significantly. We interpret the findings, based on the theory of institutional complementarity, and derive lessons for policy makers around the world who are currently facing their own Great Recessions and developing effective policy responses.long-term employment, job security, Great Recession, Lost Decade, Japan and the U.S.

Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

Two stylized facts characterized Japan during the so-called Lost Decade (1992-2005): rising wage inequalities and increasing productivity differentials at the firm level. Surprisingly, these features have never been connected in the literature. This paper attempts to fill this gap by proposing an explanation focusing on labor market mechanisms. We first construct an efficiency wage model with two types of firms distinguished by their job security schemes and associated incentive mechanisms. We show that a comparable negative productivity shock at the aggregate level leads to different firm reactions; namely, the model predicts increasing effort from workers in firms employing an efficiency wage mechanism. This leads to increasing productivity and wage differentials and a rise of the share of these firms in the total population of firms. We test this model using Japanese micro data. For the first time, we match the Basic Survey on Wage Structure and the Employment Trend Survey for 2005. The matched worker-firm dataset we obtain allows us to confirm the existence of an efficiency wage mechanism on average. We also divide our sample of firms into two groups using the unknown regime switching regression a la Dickens and Lang (1985), and find that the primary sector, unlike the secondary, is characterized by efficiency wages. We confirm this result with various robustness checks. Finally, we simulate the evolution of the share of the primary sector in the economy and find that it substantially increased between 1981 and 2005 in line with the predictions of our model.heterogeneity of firms, efficiency wages, job security, effort, productivity differentials, wage inequalities

Dispute Resolution Systems and Collective Bargaining: From the perspective of disputes over dismissal (Japanese)

When the Japanese economy went into recession in the 1990s, the number of employees dismissed by companies increased dramatically while the ratio of disputes over dismissals, in the form of labor action and lawsuits, has been in continuous decline since that time. It is true that overall the ratio of lawsuits in relation to the number of dismissals has increased since 2002, but this is because of the reduced cost of access to judicial resources owing to the opening of labor consultation service centers, and not because of any disturbance to legal norms. Thus, looking at dismissal disputes, the case law, particularly in regard to unfair dismissals, has been securely established and continues to provide a stable social norm in the Japanese labor markets. It is important to notice that many of the dismissal cases have been contended as class actions, and collective bargaining has provided the key mechanism of case law for dismissals in Japan. Therefore when we find the relative number of labor lawsuits filed by individuals increasing, as opposed to collective labor action, we have to be cautious that it is not clear what kind of role collective bargaining is playing here. Although current labor laws and regulations depend largely on establishing social norms based upon collective bargaining, studying the course of disputes over dismissals may enable us to present points of discussion with regard to the form that collective bargaining should take.

The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994|2003

The median wage in Japan has fallen nominally since 1999 due to a severe recession, while the statutory minimum wage has steadily increased over the same period. We used large micro-data sets from two government surveys to investigate how the minimum wage has affected wage distribution under the unusual circumstances of deflation. The compression of the lower tail of female wage distribution was almost completely explained by the increased real value of the minimum wage. The steady increases in the effective minimum wage reduced employment among low-skilled, young and middle-aged female workers, but the mechanical effect associated with disemployment on wage compression was minimal. These results held even after controlling for composition effects. The minimum wage contributed to the reduction in the pay gap between full-time and part-time workers.Minimum Wage, Wage Distribution, Wage Inequality, Employment, Deflation

Wage Distribution in Japan: 1989-2003

Diverging economic inequality has become a common focus of economic debate in developed countries. In particular, the recent experience of Japan has started attracting international attention. We take advantage of a rich micro-level data set from the Basic Survey on Wage Structure (1989-2003) to perform an in-depth analysis of the change in the inequality and distribution of the hourly wage. We observe that lower returns to education and years of tenure contribute to diminishing income disparity between groups for both sexes. A larger variance within a group contributes to the wage disparity for males, while an increased heterogeneity of workers' attributes contributes to the wage disparity for females. The Dinardo, Fortin, and Lemieux decomposition also confirms the basic findings from a parametric variance decomposition.Wage Distribution, Wage Equation, Variance Decomposition

The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994-2003

The statutory minimum wage has steadily increased for decades in Japan, while the median wage has fallen nominally since 1999 because of a severe recession. We use large micro-data sets from two government surveys to investigate how the minimum wage has affected the wage distribution under unusual circumstances of deflation. The compression of the lower tail of the female wage distribution is largely explained by an increased real value of the minimum wage. Steady increases in the effective minimum wage reduced employment among low-skilled, middle-aged female workers, but the mechanical effect associated with disemployment on wage compression was minimal.minimum wage, wage distribution, wage inequality, employment, deflation

Trends in Long-term Employment and Job Security in Japan and the United States: The Last Twenty-Five Years

Taking advantage of a recent relaxation of Japanese government's data release policy, we conduct a cross-national analysis of micro data from Japan's Employment Status Survey and its U.S. counterpart, Current Population Survey. Our focus is to document and contrast changes in long-term employment and job security over the last twenty five years between the two largest advanced economies. We find that in spite of the prolonged economic stagnation, the ten-year job retention rates of core employees (employees of prime age of 30-44 who have already accumulated at least five years of tenure) in Japan were remarkably stable at around 70 percent over the last twenty-five years, and there is little evidence that Japan's Great Recession of the 1990s had a deleterious effect on job stability of such employees. In contrast, notwithstanding its longest economic expansion in history, the comparable job retention rates for core employees in the U.S. actually fell from over 50 percent to below 40 percent over the same time period. The probit estimates of job loss models in the two nations also point to the resilience of job security of core employees in Japan, whereas showing a significant loss of job security for similar employees in the U.S. Though core employees in Japan turned out to have weathered their Great Recession well, we find that mid-career hires and young new job market entrants were less fortunate, with their employment stability deteriorating significantly. We interpret the findings, based on the theory of institutional complementarity, and derive lessons for policy makers around the world who are currently facing their own Great Recessions and developing effective policy responses