Labor Immobility in Japan: Its Causes and Consequences

Abstract

This paper builds and calibrates a model of competitive search that can reproduce a set of stylized facts concerning major impacts of the decade long stagnation and subsequent changes in the labor market in Japan. We highlight the role played by varying degrees of relation specific investments in forming employment relations. By embedding such a system of employment in an economy plagued with limited capital mobility, we show that the macro technology shocks can generate upward drift in Beveridge curve, pro-longed periods of labor adjustments, decline in the share of jobs with costly investment in training, and strong cohort effects. The paper also simulates impacts of 'zombie' jobs, firing cost, and subsidy for training. Through these simulations we show that the combination of the macro technology shocks and high cost of re-training is responsible for the sluggish labor adjustment, shrinking core employment, and stagnant productivity.

The Japanese Employment System after the Bubble Burst: New Evidence

“…For instance, Chuma (1998) and Ono and Rebick (2003) argue a change in the legal environment in Japan following the first oil crisis in the mid-1970s made it even more difficult for Japanese employers to lay off their employees, resulting in increased rigidity of the Japanese labor market and heightened barriers to the development of effective external labor markets. Such absence of effective external labor markets allegedly fosters inefficient allocation of labor and hence lower productivity (see Ariga and Okazawa, 2007 for such labor market mismatch during the Great Recession). However, recent work on employment protection laws in Japan points to long-term stability of the legal environment surrounding employment protection in Japan at least up until 1997 (see, for instance, Kambayashi and Kawaguchi, 2008).…”

Procrastinators and hyperbolic discounters: Transition probabilities of moving from temporary into regular employment

“…In Japan, a dual labor market comprises of a sector of highly stable employment and a considerably less stable sector of part-time, temporary contract workers, which has emerged in the 1970s and has since become an important policy agenda, especially after the Lehman shock (Rebick, 2005). 1 There has been some evidence of rigid mobility within the dual labor market, whereby starting one's career in less stable rather than regular employment reduces one's probability of attaining regular employment in the future (Ariga and Okazawa, 2011). Our data also suggests rigidity in job transitions between employment types.…”

The Japanese Employment System after the Bubble Burst: New Evidence

“…For instance, Chuma (1998) and Ono and Rebick (2003) argue a change in the legal environment in Japan following the first oil crisis in the mid-1970s made it even more difficult for Japanese employers to lay off their employees, resulting in increased rigidity of the Japanese labor market and heightened barriers to the development of effective external labor markets. Such absence of effective external labor markets allegedly fosters inefficient allocation of labor and hence lower productivity (see Ariga and Okazawa, 2007 for such labor market mismatch during the Great Recession). However, recent work on employment protection laws in Japan points to long-term stability of the legal environment surrounding employment protection in Japan at least up until 1997 (see, for instance, Kambayashi and Kawaguchi, 2008).…”