To Fire or to Hoard? Explaining Japanâ€™s Labor Market Response in the Great Recession
The Great Recession pushed Japanâ€™s unemployment rate to historic highs, but the increase has been small by international standards and small relative to the large output shock. This paper explores Japanâ€™s cyclical labor market response to the global financial crisis. Our findings suggest that: (i) employment responsiveness has been historically low but rising over time with the increasing importance of the non-regular workforce; (ii) the labor market response was consistent with historical patterns once we control for the size of the output shock; and (iii) the comparatively lower employment response vis-Ã -vis other countries can in part be explained by the quick implementation of an employment subsidy program, a more flexible wage system, and a corporate governance structure that places workers rights above shareholders.
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