Employment Adjustments of Regular and Non-Regular Workers to Exogenous Shocks: Evidence from Exchange-Rate Fluctuation

Abstract

The authors investigate the adjustments in employment of regular and non-regular workers, exploiting the exchange-rate fluctuation and heterogeneous dependence on international trade across firms as a source of exogenous variation. An analysis of panel data of Japanese manufacturers reveals that the appreciation of the Japanese yen spontaneously decreased the sales of exporters and the employment of non-regular workers, but it did not reduce the employment of regular workers. This finding provides support for the claim that firms are likely to adjust the employment of non-regular workers to absorb exogenous shocks and to insulate regular workers from the shocks in an uncertain business environment. In exploring the mechanism driving these results, the authors also find that exporters use the employment of non-regular workers and wages of regular workers as adjustment margins for the exchange-rate fluctuation to hoard regular workers, who presumably hold higher levels of firm-specific human capital.

The Great Disconnect: The Decoupling of Wage and Price Inflation in Japan

“…By 2005, the excess employment indicator is back to the 1997 level and it remains there for 2 more years, before spiking again during the global financial crisis. The strong cyclicality of excess full-time employment is consistent with Yokoyama, Higa, and Kawaguchi (2019), which finds that Japanese manufacturing firms tend to hoard regular workers while shedding non-regular workers when the yen appreciates (which they consider to be an exogenous shock). Looking back at Figure 4, it is clear that the periods of excess correspond to times when full-time employment falls.…”

Exchange rate risk and the skill composition of labor

“…8 Holmlund and Storrie (2002) for instance document that temporary workers bore the brunt of the impact of a severe downturn in Sweden in the early 1990s. Of particular interest is also Yokoyama et al (2018) who show that an appreciation of the Japanese yen is associated with a decrease in non-regular employment whereas there is no statistically significant effect on the number of regular employees. We may think of this first aspect as choosing different labor inputs for a given production function.…”

Multinationals, intra‐firm trade and employment volatility

“…Using firm-level data for Japan from the Basic Survey of Japanese Business Structure and Activities (BSJBSA),Tanaka (2013) examined the effects of trade on sales volatility but not employment volatility. Similarly,Yokoyama et al (2019) utilized BSJBSA firm-level data to examine the effects of the exchange rate on employment. However, they did not explicitly focus on employment volatility.…”

“…Similarly, Yokoyama et al. () utilized BSJBSA firm‐level data to examine the effects of the exchange rate on employment. However, they did not explicitly focus on employment volatility.…”

“… The use of permanent and regular workers in this paper follows Yokoyama et al. (). In section 5.1, we discuss the employment volatility of part‐time workers in more detail. …”