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The Path to Higher Growth; Does Revamping Japan’s Dual Labor Market Matter?


  • Chie Aoyagi
  • Giovanni Ganelli


This paper argues that Japan’s excessive labor market duality can reduce Total Factor Productivity (TFP) due to a negative impact on non-regular workers’ effort and on firms’ incentives to train them. On the basis of cross-country empirical evidence, the paper proposes some reform options. In particular, our analysis suggests that reducing the difference in employment protection between regular and non-regular workers would substantially reduce labor market duality in Japan. One reform consistent with these findings is the introduction of a Single Open Ended Contract for all newly hired workers. This reform could be complemented by a shift towards a model that combines labor market flexibility and security (“flexicurity”) and by policies aimed at encouraging wage growth.

Suggested Citation

  • Chie Aoyagi & Giovanni Ganelli, 2013. "The Path to Higher Growth; Does Revamping Japan’s Dual Labor Market Matter?," IMF Working Papers 13/202, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/202

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    References listed on IDEAS

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    6. Damiani, Mirella & Pompei, Fabrizio & Ricci, Andrea, 2011. "Temporary job protection and productivity growth in EU economies," MPRA Paper 29698, University Library of Munich, Germany.
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    8. Ryo Kambayashi & Daiji Kawaguchi & Ken Yamada, 2009. "The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994 |2003," Global COE Hi-Stat Discussion Paper Series gd09-074, Institute of Economic Research, Hitotsubashi University.
    9. Federica Origo & Laura Pagani, 2008. "Flexicurity and Workers Well-Being in Europe: Is Temporary Employment Always Bad?," Working Papers 141, University of Milano-Bicocca, Department of Economics, revised Jun 2008.
    10. KUME Koichi & OHTAKE Fumio & OKUDAIRA Hiroko & TSURU Kotaro, 2011. "An Empirical Analysis on the Happiness of Japanese Non-Regular Workers (Japanese)," Discussion Papers (Japanese) 11061, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. Elif C Arbatli & Dennis P Botman & Kevin Clinton & Pietro Cova & Vitor Gaspar & Zoltan Jakab & Douglas Laxton & Constant A Lonkeng Ngouana & Joannes Mongardini & Hou Wang, 2016. "Reflating Japan; Time to Get Unconventional?," IMF Working Papers 16/157, International Monetary Fund.
    2. Miyamoto Hiroaki, 2016. "Growth and non-regular employment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(2), pages 523-554, June.
    3. Mai Dao & Davide Furceri & Jisoo Hwang & Meeyeon Kim & Tae-Jeong Kim, 2014. "Strategies for Reforming Korea's Labor Market to Foster Growth," Working Papers 2014-25, Economic Research Institute, Bank of Korea.


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