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Open Access Publications from the University of California

Essays on the Japanese labor market

  • Author(s): Diamond, Jess
  • et al.

In studying the Japanese economic miracle that occurred after the devastation of World War II, many researchers focused on unique features of the Japanese labor market to explain the country's high and growing productivity. One of the most prominent of these features was regular employment, an arrangement characterized by the twin pillars of lifetime employment and seniority-based wages. At its core was the long-term employment relationship between a worker and his firm that provided heavy investment in the worker's human capital. Over time the Japanese labor market has undergone many changes, but one of the most important has been the rise and apparent decline of regular employment. In its wake a dual labor market has emerged, consisting of a regular employment sector reduced in size and a growing non-standard employment sector. Chapter 1 investigates the impact of the dual labor market on workers' earnings. The theory of human capital predicts that the greater investment in human capital of regular employees should raise the returns to regular employment above those to non-standard employment. This chapter investigates whether or not this is the case by building a model of how the dual labor market impacts incentives to invest in workers' human capital and how such investment affects workers' earnings. I then investigate whether or not this model is supported by the data. I find that tenure in regular employment is a more important factor in wage growth than previous work experience, regardless of whether that experience was in regular or non-standard employment. Not only are returns to tenure in regular employment greater than those to past regular and non-standard employment, by and large, there does not appear to be a difference between the returns to past experience in regular employment and past experience in non-standard employment. Furthermore, although tenure in regular employment is an important determinant of wage growth, tenure in non-standard employment is not. Chapter 2 extends the investigation into the impact on workers of the dual labor market by investigating how workers' future employment opportunities are impacted by their employment histories. Specifically, this chapter uses a probability model to investigate in which sector of the dual labor market an individual worker will most likely be employed given his previous history of employment in the regular and non-standard employment sectors. Using this model, I also investigate how the dual labor market affects the employment opportunities of workers of different ages and how these effects have changed over time. My results suggest that starting one's career in non-standard rather than regular employment reduces one's probability of being in regular employment in the future. I also propose a dynamic unobserved effects model in order to separate the effect of unobserved individual heterogeneity from that of true state dependence and find that there is a large degree of state dependence even after controlling for individual heterogeneity so that people are likely to remain in the whichever employment sector they currently find themselves. Among the most important changes that have occurred in Japanese corporate finance over the past 30 years has been the liberalization and internationalization of capital markets, leaving management less protected from the demands of shareholders. Chapter 3 shifts the focus of analysis from workers to firms and investigates whether or not the capital structure of firms affect their personnel strategies and employment policies. In particular, this chapter asks whether the importance of a particular stakeholder to a firm's financing affects which stakeholders the management of the firm prioritizes and how this affects the firm's views on lifetime employment and employee training. I find that the financial structure of the firm is correlated with which stakeholders are regarded as important or influential by the firm. Similarly, I find longer average lengths of service at older firms and firms with lower rates of profitability. I also find that older firms and firms with lower rates of profitability are more likely to reconsider their policies on lifetime employment. Finally, I find that firms are less likely to report that they will support lifetime employment in the future the higher is the percentage of shares owned by either foreign shareholders or individual shareholders

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