Economic Analysis Series No.199
THE ECONOMIC ANALYSIS

June, 2019
(Editorial)
Special Editor Daiji KAWAGUCHI
(Articles)
Change in the Structure of Corporate Governance and its Effects on Human Capital Investment
Akiomi KITAGAWA
Wage Premiums by College and Postgraduate Major
Kengo YASUI
The Analysis of the Firm-provided Training in Japan - Synergistic Effect of OJT and Off-JT -
Akihito TODA
Human Resources Management Using Scores for Cognitive and Non-cognitive Abilities
Tomohiko INUI, Naomi KODAMA, Tomoki SONODA, Izumi YOKOYAMA, Jun NAITO and Mitsuhiko NITA
Mesuring Mismatch in Japanese Labor Market
Keisuke KAWATA
Family Friendly Policies and Flexible Work Arrangement in Japan: What Makes them Effective in Improving Women’s Advancement?
Masako KUROSAWA

The full text is written in Japanese.

(Abstract)

Change in the Structure of Corporate Governance and its Effects on Human Capital Investment

By Akiomi KITAGAWA

This paper examines the effects of the change in the structure of corporate governance on human capital investment, using a two-period general equilibrium model. Under the scheme of safety-first corporate governance, like the main bank system in Japan, the survival rate of a firm is so high that many workers are given chances to form firm-specific human capital, and income difference among workers is relatively small. In contrast, under the scheme of stock-market-oriented corporate governance, the survival rate of a firm is so low that only a few workers are given chanc-es to form firm-specific human capital, and income difference among workers is substantially large. It is also shown that employment subsidies intending to enhance the chances to form firm-specific human capital always lead to an improvement in economic welfare, regardless of a scheme of corporate governance, and that income transfers from those who are given chances to form firm-specific human capital to those who are not also contribute to an improvement in economic welfare, unless the survival rate of a firm is extremely low.

JEL Classification Codes: G34, J24, J31
Keywords: corporate governance, human capital, Japanese employment system

Wage Premiums by College and Postgraduate Major

By Kengo YASUI

This paper aims to estimate 1) STEM major (“rikei” in Japanese) wage premium and postgraduate wage premium after controlling for high school experiences and proxies for an individual’s ability and 2) wage differentials between eight different majors at college and graduation school, respectively. Using the 2014 data, when one’s ability and high school experiences are held constant, the wage premiums for STEM majors are found to be 3.2% and 11.7% among men and women, respectively, while those of graduate school are 17.8% and 23.4%. The returns to both STEM major and postgraduate education for women are considerably higher than those of the year 2000. Men who participated in student council and sports club activities (team sports) are less likely to choose STEM majors. As for women who participated in sports club activities, their team sports experience lowers the probability of continuing to graduate school, whereas the individual sports experience increases its probability. When both women and men are used as the sample for analysis, the high school experience of student council results in the lower probability of pursuing postgraduate study, which in particular is pronounced among those who have STEM majors. Finally, the largest wage premiums for men, relative to a major in humanities, is found in medical and pharmaceutical science (52.6%), followed by welfare (21.0%), others (14.8%), social science (11.9%), and natural science (11.4%). The postgraduate major that receives the highest wage premium among men is social science (28.1%), followed by other studies (22.6%), humanities (18.3%), and natural science (11.4%). As for women, medical and pharmaceutical science (37.8%) receives the largest wage premium, along with social science (13.3%), natural science (10.1%). The rankings of postgraduate wage premium among women are as follows: others (77.1%), humanities (33.2%), natural science (23.5%), and social science (22.0%).

JEL Classification Codes: I23, I26, J24, J31
Keywords: Human Capital, Wage Premium, Higher Education

The Analysis of the Firm-provided Training in Japan - Synergistic Effect of OJT and Off-JT -

By Akihito TODA

This paper studies the effect of firm-provided training such as OJT (On the Job Training) and Off-JT (Off the Job Training) toward wage rate using Japanese panel data. In Japan, previous studies show that OJT played an important role in terms of development of human capital, however recently the job training cost provided by Japanese firms steadily declining. We employ matching methods to examine again that there is a significant effect on the job training toward the wage rate afterward with a specific focus to the effect of synergistic effect of OJT and Off-JT. As a result, with the synergistic effect of OJT and Off-JT, we find significant effect and the impact is similar with the effect of Off-JT itself. This result indicates that synergistic effect may be included to some extent to the effect of only Off-JT and that firms promoting Off-JT are encouraged to promote the working environment to boosting the chance of OJT,

JEL Classification Code: J24, J31
Keywords: Firm-provided Training, OJT, Off-JT, Matching Methods

Human Resources Management Using Scores for Cognitive and Non-cognitive Abilities

By Tomohiko INUI, Naomi KODAMA, Tomoki SONODA, Izumi YOKOYAMA, Jun NAITO and Mitsuhiko NITA

This paper analyzes how a mismatch between employees’ abilities (cognitive and non-cognitive) and those expected by firms affects hiring probability, job separation rate, and employee performance, using data from Synthetic Personality Inventory 3 (SPI 3) developed by Recruit Management Solutions Co., Ltd. The following results are obtained from quantitative analyses that control for company fixed-effects. First, a job mismatch does not significantly affect the employee performance evaluations conducted by supervisors. In addition, once the effects of the personality traits of each employee are controlled for, employee's low ability does not lower the evaluation of the person in a statistically significant way. On the other hand, for employees with both disadvantages of low ability and job mismatch, there is a higher probability of job separation. If the cognitive ability of the employee is very high, the existence of a job mismatch does not increase the job separation rate. In the absence of job mismatch, having low cognitive ability also does not increase the probability of job separation. Employees with higher degree of mismatch or lower cognitive ability are less likely to get hired.

Next, considering the synergistic effect between personality traits and mismatch, there is a tendency for the employee performance evaluations to decline if persons have assertive and/or sensitive psychological traits together with a job mismatch. In contrast, even if there is a mismatch, having both humility and a strong sense of responsibility mitigates the negative effects of the job mismatch on evaluations. Furthermore, the job separation rate for people who are ambitious and/or temperamental tends to rise significantly when they confront a mismatch. Conversely, introverted and conflict-avoidant people are unlikely to leave their jobs, even in the case of a mismatch. Even when there is a mismatch, people who are industrious, compliant, and thoughtful are likely to be hired by a firm, whereas those with temperamental personalities facing a job mismatch have a lower probability of being hired. In short, some personality traits mitigate the negative effects of a mismatch, while others magnify them. These results suggest that the effects of a mismatch highly depend on the personality traits of each individual employee.

The declining birth rate has led to a drop in the number of new graduates entering the labor force in Japan and it has therefore become crucial to boost each worker’s productivity. Our results indicate that it is important to explore job matching from the perspective of employees’ personality traits as well as their abilities.

JEL Classification Codes: D22, J53, J24, J28
Keywords: Matching, Cognitive Ability, Non-cognitive Ability, Attrition, Informal Decision

Mesuring Mismatch in Japanese Labor Market

By Keisuke KAWATA

This paper estimates the labor market mismatch based on Sahin et al. (2014)’s approach. My estimation result shows that the labor market mismatch reduces the new hiring around 9% to 10% in Japan. Additionally, a new decomposition approach is introduced, which can provide implications to understand the source of mismatch. The decomposition results show that (1) the main source of the mismatch is the between-occupational mismatch, not the between-regional mismatch, (2) the between-occupational mismatch is serious in urban area, (3) the pattern of the mismatch is different between rural and urban area; the over-labor-supply in the office work job and the under-supply in the security and construction jobs are more serious in urban area than in rural area.

JEL Classification Code: J61, J62, J63
Keywords: Mismatch, Matching Function, Worker Flow

Family Friendly Policies and Flexible Work Arrangement in Japan: What Makes them Effective in Improving Women’s Advancement?

By Masako KUROSAWA

Japanese government has been making effort to formulate parental leave/reduced hour policies that render work and family compatible since 1992. Many large firms have been striving to provide more than what is legally mandated along this line. Since late 2000s, these policies have finally started to enable women working as full-time regular employees to hold onto the job even after the first child is born. However, women are still not well represented in managerial positions.

This paper reviews the impact of these government policies in Japan to date and seeks measures for further progress in the use of flexible work arrangement (FWA) by analyzing unique employer-manager-employee matched data. It examines the conditions and initiatives under which FWA is most effective in raising workers’ motivation, firms’ business outcome, and representation of women in the managerial positon.

The analyses in the paper indicate the importance of firms to commit making WLB promotion part of their business strategy and have them permeate among managers and employees, as well as to reduce long working hours, and to provide fair evaluation. These are all found to make FWA work more effectively to increase sales/recurring margin and to advance women employees. These factors are also found to raise workers’ motivation, and are particularly important amongst women.

JEL Classification Codes: J81, D22
Keywords: Work Life Balance, Flexible Work Arrangement

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