Working Hours Reform: A bird's-eye perspective (Japanese)

Although the issue of excessive working hours in Japan has not become more serious in the past 20 years, the reality is that it has not improved either. When considering this problem, it is necessary to draw a line between voluntary long working hours, influenced by factors such as monetary incentives and the desire for career advancement and involuntary work at the behest of companies that have a monopsony in the labor market, face time-consuming internal coordination, or are trying to maintain a buffer for labor adjustment. Given the extremely diversified causes of long working hours, regulations should be designed primarily to protect workers' health, then in order to more carefully embody the needs of individual workers, it is important to resolve issues through a more decentralized framework based on smooth communication between labor and management. As a specific direction for the reform of working hour regulations, existing systems should be consolidated and streamlined. For that purpose, monetary compensation such as overtime premiums should be changed to makeup holidays, as is practiced in Europe, and with respect to the exemption and the discretionary system of working hour regulations, notification to administrative authorities should be made mandatory to prevent the discretionary use of employers, while the scope of subjects should be flexibly determined by labor-management agreements.

A Bird Eye's View for Coping with Non-Regular Employment Problems: Towards reform of the temporary employment system (Japanese)

The essence of non-regular employment problems lies not in temporary staff services but in fixed-term employment. Thus, reforming the fixed-term employment system is necessary in order to address the instability of employment, inequality in the treatment of employees, and a decline in labor quality due to the recent expansion in fixed-term employment. To be more precise, inequality in the treatment of employees should be reduced by introducing some forms of compensation for employment instability, e.g., severance pay at the end of the contract, and treating fixed-term employees in the manner that takes account of the length of their service period. It is also necessary to create various types of employment contracts which would bridge the gap between permanent employment and temporary contracts, thereby providing intermediary steps from an unstable temporary job to a stable permanent job. Moreover, from the viewpoint of the need to promote an income redistribution policy, the earned income tax credit (EITC) for low-income earners should be introduced.

Labor Market Institution Reform in Japan: Problems and recommendations (Japanese)

This paper presents five perspectives required in reforming Japan's labor market institutions, drawing on U.S. and European experiences and findings resulting from their empirical analysis, and based on recent economic theories, particularly the basic idea of "comparative institutional analysis" wherein "institutions" are defined as critical infrastructure that enables proper functioning of the market mechanism. The first perspective calls for reforming labor market institutions in terms of shifting from "insider-oriented" to "macro-oriented." This refers to a kind of reform that takes in account not only impacts on regular employees as insiders but also impacts on non-regular employees, companies, and the macro-economy. The second perspective calls for shifting from "heteronomous homogeneity" to "autonomous diversity." In this, the questions of how to address disparities between regular and non-regular workers and how to achieve greater flexibility in work-hours are particularly important. The third perspective is to shift from "uniform regulations" to "decentralized orders" in rulemaking. Here, the facilitation and enhancement of labor-management communication as well as the formulation of process- and procedure-oriented employment rules are crucial in order to promote rulemaking and problem-solving based on the principle of decentralized labor-management autonomy. The fourth perspective calls for a shift in the focus of labor institutions from weak and disadvantaged to empowered individuals. To achieve this end, it is important to establish an effective external labor market and promote capacity-building of individual workers to improve their bargaining power. The fifth perspective is to shift from a "segmented" to a "cross-cutting" approach in reforming labor market institutions. This requires a broader viewpoint that goes beyond a "tug of war" or "zero sum game" between labor and management to achieve a transparent reform process.

Mergers, Innovation, and Productivity: Evidence from Japanese manufacturing firms

We investigate the impact of merger on innovation and efficiency using a micro dataset of Japanese manufacturing firms including unlisted firms during the period of 1995-1999. We find that the acquirer's total factor productivity (TFP) decreases immediately after mergers and does not significantly recover to the pre-merger level within three years after mergers. We also find that the R&D intensity does not significantly change after mergers in spite of a significant increase in the debt-to-asset ratio. Our results suggest that the costs of business integration are large and persistent. To take into considering large integration costs, we also analyze the post-merger performance from one year after mergers, finding no significant increase in TFP or R&D intensity up to three years after mergers. Given the heterogeneity of mergers, we analyze the post-merger performance by classifying merger types. We find that the recovery of TFP after mergers is significant for mergers across industries or within the same business group, suggesting that a synergy effect works well and integration costs are small for those types of mergers.

Consolidation of Cooperative Banks (Shinkin) in Japan:Motives and Consequences

We investigate the motives and consequences of the consolidation of cooperative banks (Shinkin) in Japan during the period 1984-2002. Our major findings are as follows. First, less profitable and less cost efficient banks are more likely to be an acquirer and a target, though even less profitable and less cost efficient banks are more likely to be a target rather than an acquirer. In addition, a larger bank is more likely to be an acquirer and smaller one a target. These results are consistent with the regulators' motive for stabilizing the local banking system.¡¡Second, acquiring banks improved cost efficiency after the consolidation. M&As also raised the loan interest rate and improved profitability and X-efficiency particularly since the latter half of the 1990s. Nonetheless, the improvement of ROA after the merger was not sufficient to fill in the initial gap of the capital ratio between merging banks and peers, resulting in the deterioration of the capital ratio of consolidated banks relative to peers. M&As did not contribute to sufficiently stabilize the local banking system despite the regulators' motive. Third, the consolidation tended to improve the profitability of merging banks when the difference in profitability and healthiness between acquiring banks and target banks were large, which is consistent with the relative efficiency hypothesis (e.g., Akhavein, Berger, and Humphrey, 1997).Length: 48 pages

Bank Regulation and Market Discipline around the World

This paper investigates the effectiveness of depositor discipline and its relationship with various bank regulations and supervisions using a panel of about 17,000 bank-year data during 1992-2002 around 60 countries. We first theoretically show that deposit interest rate and its sensitivity to bank risk depend on the bank insolvency risk and the fraction of deposit protection, among others. Then we find evidence that strict regulations on bank activities and powerful supervisory authorities tend to reduce deposit interest rate and its sensitivity to bank risk. We interpret our results as suggesting that strict regulations on bank activities are likely to be associated with generous bailout of an insolvent bank, resulting in weak market discipline and a fragile banking system.

International Transmission of the 2008 Crisis: Evidence from the Japanese stock market

We investigate the international transmission of the credit crisis triggered by the Lehman default in September 2008 using Japan's stock market data. Using cumulative returns (CR) during the crisis, starting from the day of Lehman's default and lasting until the day prior to the news of the TARP capital injection, we find that CR is negatively correlated with the export-to-sales ratio, the loan-to-asset ratio, and the share owned by foreign investors. Once controlling for market risk, however, cumulative abnormal returns (CAR) during the same period shows a different picture. CAR is not negatively correlated with export shares or the share owned by foreign investors, which implies that neither trade channels nor portfolio-rebalancing by foreigners are unique characteristics of the crisis, but can be observed in normal downturns. We find that CAR is negatively correlated with the loan-to-asset ratio, suggesting that market participants were worried about the credit crunch. We also find that CAR is negatively correlated with the shares of exports to North America and Asia after controlling for total exports, suggesting that the composition of export destination matters. Finally, we find that the concentration of export destination is also relevant.

Consolidation of Banks in Japan: Causes and Consequences

We investigate the motives and consequences of the consolidation of banks in Japan during the period of fiscal year 1990-2004 using a comprehensive dataset. Our analysis suggests that the government's too-big-to-fail policy played an important role in the mergers and acquisitions (M&As), though its attempt does not seem to have been successful. The efficiency-improving motive also seems to have driven the M&As conducted by major banks and regional banks in the post-crisis period, while the market-power motive seems to have driven the M&As conducted by regional banks and corporative (shinkin) banks. We obtain no evidence that supports managerial motives for empire building.

Managerial Entrenchment and Anti-takeover Provisions in Japan

We analyze the characteristics of Japanese firms that introduced antitakeover provisions after the official guidelines for antitakeover provisions were released in 2005. Our main results are the following. First, firms' operating performance or stock market valuations were not related to the adoption of takeover defense measures. Second, firms' age and their ownership structure were correlated with the adoption of antitakeover provisions. Specifically, companies that were older, had lower proportions of shares held by their directors, or higher cross-shareholding ratios were more likely to adopt takeover defense measures, which suggests that the adoption of such measures is motivated by self-protection on the part of corporate managers and influenced by the conflicts of interest between managers and shareholders. In addition, as controlling shareholders had lower shares of stocks and institutional investors had higher shares of stocks, firms were more inclined to adopt takeover defense measures, suggesting that companies are likely to adopt such measures if their shares are liquid and easy to acquire.