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Employment and Wage Adjustments at Firms under Distress in Japan: An analysis based upon a survey

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  • ARIGA Kenn
  • KAMBAYASHI Ryo
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    Abstract

    We use the result from a survey of Japanese firms in manufacturing and services to investigate the choice of wage and employment adjustments when they needed to reduce substantially the total labor cost. Our regression analysis indicates that the large size reduction favors the layoffs of core employees, whereas base wage cuts are more likely if firms do not feel immediate pressures from the external labor market or strong competition in the product market. We also find some evidence that the concerns over adverse selection or demoralizing effects of wage cuts are real. Firms do try to avoid using base wage cuts if they consider these factors more important.

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    File URL: http://www.rieti.go.jp/jp/publications/dp/09e042.pdf
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    Bibliographic Info

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09042.

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    Length: 30 pages
    Date of creation: Aug 2009
    Date of revision:
    Handle: RePEc:eti:dpaper:09042

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    1. Bertola, Giuseppe & Dabusinskas, Aurelijus & Hoeberichts, Marco M. & Izquierdo, Mario & Kwapil, Claudia & Montornès, Jérémi & Radowski, Daniel, 2010. "Price, wage and employment response to shocks: evidence from the WDN survey," Working Paper Series 1164, European Central Bank.
    2. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
    3. William H. Branson & Julio J. Rotemberg, 1981. "International adjustment with wage rigidity," NBER Chapters, in: International Seminar on Macroeconomics, pages 309-332 National Bureau of Economic Research, Inc.
    4. Isamu Yamamoto, 2008. "Changes in Wage Adjustment, Employment Adjustment and Phillips Curve: Japan's Experience in the 1990s," Keio/Kyoto Joint Global COE Discussion Paper Series 2008-024, Keio/Kyoto Joint Global COE Program.
    5. Tachibanaki, Toshiaki, 1987. "Labour market flexibility in Japan in comparison with Europe and the U.S," European Economic Review, Elsevier, vol. 31(3), pages 647-678, April.
    6. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109.
    7. Takao Kato, 2000. "The Recent Transformation of Participatory Employment Practices in Japan," NBER Working Papers 7965, National Bureau of Economic Research, Inc.
    8. Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March.
    9. Kuroda, Sachiko & Yamamoto, Isamu, 2005. "Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 1-29, May.
    10. Kato, Takao, 2001. "The End of Lifetime Employment in Japan?: Evidence from National Surveys and Field Research," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 489-514, December.
    11. Kondo, Ayako, 2007. "Does the first job really matter? State dependency in employment status in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 21(3), pages 379-402, September.
    12. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
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