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Bonuses and Employment in Japan

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  • Richard B. Freeman
  • Martin L. Weitzman

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: Apr 1986
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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. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, Elsevier, vol. 21(1-2), pages 11-39.
  2. Symons, J & Layard, R, 1984. "Neoclassical Demand for Labour Functions for Six Major Economies," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376), pages 788-99, December.
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