Economic Analysis Series No.191THE ECONOMIC ANALYSIS

Two-Part Wage Rule in Japan – Conditions for Nominal Wage Increases –

By Shigeru WAKITA

The Japanese low wage increases is considered dividing total wages between Shunto and bonuses. Empirical investigation showed a qualitative difference exists between these two types of wages. Shunto has set the coordinated wage rate by focusing on the whole labor market condition, and become to be conscious to labor hoarding existed in the firms after financial crisis in 1998. Bonuses have respond to firm’s profit, which have become less influential factor. Decreasing bonuses means the decline of rent sharing to workers, which is the main factor of low wage increases.

JEL Classification Number: E24, J52
Key Words: Shunto, Bonus, Wage increases

Business Cycle and Wage Dispersion

By Masaru SASAKI and Hiroaki MIYAMOTO

This paper examines wage differentials across workers over business cycle in the Japanese labor market. First of all, we overview time trends and validities in variables relating to the Japanese labor market such as unemployment rates and wage differentials between full-time and part-time workers, using two aggregate Japanese data (Basic Survey on Wage Structure (BSWS) and Monthly Labor Survey). Secondly, we develop a stochastic search and matching model with two sectors each for full-time and part-time workers. We also incorporate on-the-job search into the model, which implies that part-time workers are allowed to move to the full-time job sector. Model parameters are calibrated to match certain facts of the Japanese labor market. Our model successfully replicates cyclical fluctuations in the wage differential between full-time and part-time workers. Furthermore we find that the wage differential widens in the sage of an economic recovery, but on the other hand, that the wage differential is reduced in the stage of an economic slowdown. These results are consistent with the fact observed from the Monthly Labor Survey.

JEL Classification Number: E24, E32, J31, J64
Key Words: Business Cycle, Wage Dispersion, Search and Matching Model

Value Productivity and Sectoral Labor Allocation in Japan

By Etsuro SHIOJI

This paper studies effectiveness of the inter-sectoral labor reallocation mechanism in Japan.

Many of the sectors that are expanding quickly in today's Japan, such as social welfare, are under tight governmental regulations. It is thus not clear if reallocation of labor towards those sectors is occurring fast enough in Japan, in a way that would reflect underlying shifts in demand, as such a process normally requires a sufficiently flexible wage adjustment mechanism. In this study, I utilize data on active job openings-to-applicants ratio, disaggregated by prefecture and by occupation, to investigate this issue.

In the first half of the paper, I try to derive useful implications from a labor search model which incorporates mobility of job seekers between a sector and the outside labor market. It is shown that, if wages are flexible in the sector, effects of changes in labor supply and demand in the outside market would spill over to the degree of labor market tightness in this sector. On the other hand, if wages are rigid in the sector, such a propagation would be completely blocked, even in the long run.

In the second half of the paper, I estimate a VAR model which achieves identification of structural shocks with both long run and short run restrictions combined, for each of the prefecture – occupation combinations. The main focus of the analysis is how the labor market tightness in each of those individual markets responds to various types of shocks to labor supply and demand, both outside and inside the individual market. As a result, it is shown that, in the case of “traditional” occupations such as sales persons and administrative staff, there is a tendency for shocks to the nation-wide labor market to propagate to those individual markets. On the other hand, for the market for “expanding” occupations such as social welfare, nursing and elderly care, there is evidence of insulation from those types of shocks. Those results suggest a possibility that there are forces that are hindering smooth transition of labor resources toward sectors in Japan which are expected to grow in future.

JEL Classification Number: J62, J21, E24
Key Words: VAR with long- and short-run restrictions, active job openings-to-applicants ratio by prefecture and by occupation, inter-sectoral labor reallocation

The Role of Human Capital Policy for Sustainable Growth

By Daiji KAWAGUCHI

Human capital policies attract much attention from policy makers of Japan as a way to sustain economic growth in face of shrinking working age population. Human capital is accumulated throughout a life and recent studies emphasize that early-stage human capital accumulation affects the subsequent human capital accumulation. In light of development of the literature, this paper reviews empirical papers on human capital accumulation and its use from Japan throughout a lifecycle. The literature demonstrates that there exists significant inequality in the opportunity for human capital accumulation in each life stage that translates into earnings inequality. The literature also points to the non-negligible impact of human capital policy, along with a significant impact of family background, on human capital formation.

JEL Classification Number: I24, I28, J24
Key Words: Human capital, life cycle, education, inequality, Japan

Childcare Availability and Maternal Employment Rate

By Yukiko ASAI, Ryo KAMBAYASHI and Shintaro YAMAGUCHI

Expansion of subsidized childcare is expected to raise the maternal employment rate. This expectation is based on observation that maternal employment rates tend to be high in provinces such as Fukui where the supply of subsidized childcare is sufficient. However, this positive correlation between childcare availability and the maternal employment rate does not necessarily imply that the expansion of childcare causally increases the maternal employment rate due to unobserved characteristics at the province level. To overcome this limitation, we focus on the growth, rather than the level of childcare availability. Using the Census from 1990 to 2010, we do not find evidence that the expansion of subsidized childcare increased the maternal employment rate. This is because young families substituted subsidized childcare for grandparental care. However, given that the rate of co-residence with grandparents dropped to 13.5%, this substitution may cease in the near future.

JEL Classification Number: J13, J21, J22
Key Words: Childcare Availability; Maternal Employment Rate; Nuclear Household; Three-Generation Household

Effects of Parental Leave Cash Benefits on The Job Continuity of Mothers

By Yukiko ASAI, Ryo KAMBAYASHI and Shintaro YAMAGUCHI

We discuss the effects of parental leave reforms in Japan in 1995 and 2001 on the job continuity of new mothers by reviewing Asai (2015). Cash benefits for parental leave was first introduced in 1995. The replacement rate was 25% in 1995, and then, raised to 40% in 2001. Because timing childbearing to take advantage of the reforms was unlikely, the reforms can be taken as exogenous for identifying the causal effects. By comparing mothers who gave birth after the reform (i.e. the treatment group) and those who did so before the reform (i.e. the control group), Asai finds no evidence that the reforms increased the job continuity of new mothers. A possible explanation for the null effects is that new mothers find it difficult to raise the family and work after the parental leave.

JEL Classification Number: J13, J21, J22
Key Words: Parental leave, Income Replacement, Female Employment

Analysis on the Determinants of Elderly Work Motivation and the Actual Employment Situation

By Akihito TODA

This study focuses on work motivation, such as until what age the elderly people are eager to work to examine the actual elderly employment with utilizing the panel survey conducted by the Ministry of Health, Welfare and Labor in Japan. We find the following points as a result. (1) people working about a profession desire to work for longer, instead those who stay in the same companies for more than 20 years and those who are working in a large company are unwilling to work. (2) work motivation are found to affect the actual employment status and the magnitude of work motivation is large. (3) factors that would leave even though they want to work longer showed greater deterioration in health. Aware of their expertise in generations would be effective in increasing the labor supply for the elderly.

JEL Classification Number: J26, I10
Key Words: work motivation; labor supply for the elderly; hazard model

Labor Supply and Income Reduction of Middle- and Old-Aged People in Japan with a Parent in Need of Long-Term Care

By Atsuhiro YAMADA and Tadashi SAKAI

In this paper, using “Longitudinal Survey of Middle-Aged and Elderly Persons,” we examined the labor supply and income reduction implications for middle- and old-aged people with a parent in need of long-term care. The dataset allowed us to control for the two decision-making endogeneities between labor supply and informal care and between long-term care of a parent and shared residency. Both endogeneities could have caused biased results in past research.

There were five main findings. First, the number of younger birth cohorts providing informal care for family members has sharply increased, reflecting the decline in birth rates. For example, this probability was found to be 6% higher for males and 8% higher for females in the 1954 birth cohort compared with that for the 1946 birth cohort. Second, even after controlling for the two endogeneities, it was found that for people who had a parent in need of long-term care, there was a 1% decrease in the labor supply every year. Third, no statistically significant negative effect was found for working hours or working days for those who had parents in need of long-term care. This implied that these people were forced to choose between pursuing a career and providing informal care, possibly because of inflexible work arrangements or intensive work, which made it impossible for them to work less. Fourth, the income of those who provided informal parental care was 6 to 8 % lower than that of those who did not. Finally, many people whose parents needed long-term care were found to be living with their parents again, indicating that the decision to provide informal care and to live together was possibly a simultaneous decision.

In consideration of the shrinking labor force in Japan, a shorter work day/hour for regular workers and/or an expansion of formal long-term care services, both of which would allow workers to strike a balance between their career and informal care provision, would be more practical policy options than the ongoing reform of the Long-term Care Leave System, which aims to provide trichotomous leave and does not intend to change the current maximum leave duration. The more practical policies would also lower the risk of poverty among the older people providing informal care.

JEL Classification Number: J26
Key Words: informal long-term care, endogeneity, labour supply