Exemption and work environment

The Labor Standards Act of Japan requires employers to compensate employees based on hours worked, but exemptions apply to specific occupations with agreements between employers and employees. We assess the impact of being exempted on hours worked, earnings, and the physical and mental health conditions of employees. We find that, on average, exempt workers work longer hours and earn more than nonexempt workers, without hurting their health status. We also find, however, that being exempted exacerbates health status when it is applied to employees who do not have discretion in how and when they work.