The impact of employment protection reform on the working conditions of fixed-term employees in Japan

This paper examines the effects of Japan’s “5-year rule,” implemented in 2018, which mandates the conversion of fixed-term employees to permanent status upon their application after five consecutive years of employment. The analysis employs a difference-in-differences (DiD) approach combined with entropy balancing. Unlike other countries’ reforms, a distinctive feature of this reform is that it grants firms discretion over its implementation. Consequently, the reform significantly increased permanent employment conversions among middle-aged and older women with lower educational attainment, though it did not affect their transition to regular employment or wages. This effect is more pronounced for women in firms, industries, and occupations with conventionally high proportions of renewable contracts. Overall, while the reform enhances women’s employment stability, it entrenches gender and educational disparities in employment conditions, with stability differences persisting even among fixed-term employees based on conversion outcomes. Strengthening the complementary policies that address these issues is warranted.