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Employment and Wage Adjustments at Firms under Distress in Japan: An Analysis Based upon a Survey

  • Kenn Ariga

    (Institute of Economic Research, Kyoto University)

  • Ryo Kambayashi

    (Institute of Economic Research, Hitotsubashi University)

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    We use the result from a survey of Japanese firms in manufacturing and service to investigate the choice of wage and employment adjustments when they needed to reduce substantially the total labor cost. Our regression analysis indicates that the large size reduction favors the layoffs of the core employees, whereas the base wage cuts are more likely if the firms do not feel immediate pressures from the external labor market or the strong competition in the product market. We also find some evidence that the concerns over adverse selection or demoralizing effects of wage cuts are real. Firms do try to avoid using base wage cuts if they consider these factors more important.

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP668.pdf
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    Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 668.

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    Date of creation: Jan 2009
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    Handle: RePEc:kyo:wpaper:668
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    1. Kuroda, Sachiko & Yamamoto, Isamu, 2005. "Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 1-29, May.
    2. Bertola, G. & Dabusinskas, A. & Hoeberichts, M. & Izquierdo, M. & Kwapil, C. & Montornès, J. & Radowski, D., 2010. "Price, Wage and Employment Response to Shocks: Evidence from the WDN Survey," Working papers 281, Banque de France.
    3. Takao Kato, 2000. "The Recent Transformation of Participatory Employment Practices in Japan," NBER Working Papers 7965, National Bureau of Economic Research, Inc.
    4. William H. Branson & Julio J. Rotemberg, 1981. "International adjustment with wage rigidity," NBER Chapters, in: International Seminar on Macroeconomics, pages 309-332 National Bureau of Economic Research, Inc.
    5. Kondo, Ayako, 2007. "Does the first job really matter? State dependency in employment status in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 21(3), pages 379-402, September.
    6. Kato, Takao, 2001. "The End of Lifetime Employment in Japan?: Evidence from National Surveys and Field Research," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 489-514, December.
    7. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109.
    8. Isamu Yamamoto, 2008. "Changes in Wage Adjustment, Employment Adjustment and Phillips Curve: Japan's Experience in the 1990s," Keio/Kyoto Joint Global COE Discussion Paper Series 2008-024, Keio/Kyoto Joint Global COE Program.
    9. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
    10. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
    11. Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March.
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