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Bonuses and Employment in Japan

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Author Info
Richard B. Freeman
Martin L. Weitzman

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Abstract

Japan has a relatively unique system of labor compensation. Most Japanese workers are paid large bonuses twice a year. This paper examines the cyclical movement of bonuses compared with wages and the relation of bonuses to employment in the context of the Weitzman "share economy." The paper makes three basic points:(1) The Japanese bonus is much more pro-cyclical than Japanese base wages,but not as cyclically variable as profits. Bonuses can be interpreted as containing a quantitatively significant revenue or profit-sharing component.(2) Bonuses have quite different employment consequences than do base wages. Even after controlling for other economic factors, bonuses are positively related to employment, whereas base wages are negatively related to employment.(3) The bonus system of paying workers, while far from explaining the whole macroeconomic story in Japan, seems to play a role in helping to stabilize Japanese unemployment at comparatively low levels.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1878.

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Date of creation: Feb 1989
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Publication status: published as Journal of the Japanese and International Economies, Vol. 1, pp. 168-194,(1987).
Handle: RePEc:nbr:nberwo:1878

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  1. Dhillon, Amrita & Petrakis, Emmanuel, 2001. "Profit-sharing, bertrand competition and monopoly unions : a note," The Warwick Economics Research Paper Series (TWERPS) 612, University of Warwick, Department of Economics. [Downloadable!]
  2. Frank R. Lichtenberg, 1996. "Labor Market Institutions, Liquidity Constraints, and Macroeconomic Stability," NBER Working Papers 3926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Takatoshi Ito & Kyoungsik Kang, 1990. "Bonuses, Overtime, and Employment: Korea vs. Japan," NBER Working Papers 3012, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Takao Kato, 2000. "The Recent Transformation of Participatory Employment Practices in Japan," NBER Working Papers 7965, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Richard B. Freeman, 2005. "What Do Unions Do?: The 2004 M-Brane Stringtwister Edition," NBER Working Papers 11410, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kenjiro Hori, 2006. "Profit-Sharing as the Optimal Wage Contract," Birkbeck Working Papers in Economics and Finance 0601, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  7. Marcus Rebick, 2000. "Japanese Labour Markets: Can we Expect Significant Change?," Economics Series Working Papers 021, University of Oxford, Department of Economics. [Downloadable!]
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  8. Takao Kato & Motohiro Morishima, 1998. "The Productivity Effects of Human Resource Management Practices: Evidence from New Japanese Panel Data," Macroeconomics 9812003, EconWPA, revised 08 Dec 1998. [Downloadable!]
  9. Ramon Moreno, 1992. "Japan's recessions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Mar 6. [Downloadable!]
  10. Edward P. Lazear & Richard B. Freeman, 1996. "Relational Investing: The Worker's Perspective," NBER Working Papers 5436, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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