Changes in the Japanese Employment System in the Two Lost Decades

Abstract

Despite changes in the economic and social environment following the burst of the bubble economy in the early 1990s, studies on the Japanese employment system so far have detected few major changes in seniority-based wage or lifetime employment patterns.Using recent microdata from the Basic Survey on Wage Structure, this paper takes another look at developments in these two key elements of the Japanese employment system. In contrast with previous studies, we do find evidence that the two practices are eroding and that, hence, the traditional employment system overall has begun to unravel. Specifically, with regard to seniority wages, we found, for example, that the age-wage profile has become flatter in recent years, especially for employees in the middle and final phase of their career. And as for lifetime employment, we found a clear downward trend in the share of lifetime employees among younger, university-educated workers from the early 2000s. Taken together, the findings suggest that a growing share of educated younger workers choose to leave indefinite-contract jobs due to the poor prospects for seniority-based wage progression, while older workers choose to stay in their present job despite stagnating or falling wages, since it is more difficult for them to find alternative employment.JEL Classification: J21, J31, J01

Effects of increased elderly employment on other workers’ employment and elderly’s earnings in Japan

“…Second, in addition to the actual increase in the number of elderly workers, the publicized image about the year 2007 problem may have triggered drastic changes in the wage structure and employment scheme. As pointed out by Hamaaki et al (2012), population aging and prolonged economic stagnation brought pressure to flatten the wage-age profile of Japanese firms, which used to be much steeper than those of other developed countries. At the same time, as shown by Kawaguchi and Ohtake (2007) and Ariga and Kambayashi (2010), wage cuts harm workers' productivity, causing many firms to hesitate before cutting wages.…”

The changing and unchanged nature of inequality and seniority in Japan

“…Male returns to education and experience can increase or decrease as a result of a rise in the share of female college-graduate workers. 13 Hamaaki et al [18] find a flattening of the earnings-age profile when not conditioning on tenure.…”

“…18 Investment in firm-specific human capital is premised on the long-term employment relationship. Although we find no substantial change in the length of tenure, a possible change in the distribution of unobserved ability by tenure could potentially explain the change in the wage-tenure profile.…”

“…Organizational changes that facilitate early promotion could potentially weaken the effect of tenure on wages. No substantial change is observed, however, in the proportion of workers in managerial positions 18 The average job tenure of male workers in Japan is the highest among the Organisation for Economic Cooperation and Development (OECD) countries, while the average job tenure of female workers in Japan is below the average [38]. The five-year retention rate of male workers in Japan is also the highest for all age groups.…”

Verification of Effectiveness of Employment Information on Productivity Performance in Japanese Companies

“…This study pointed out the reluctance to reduce the number of employees in Japanese companies. Concerning employment systems, Hamaaki, Hori, Maeda and Murata [7] implied that lifetime employment system and seniority system had been crumbling. The benefits of these employment systems are brought to college degree workers in large companies.…”