ESRI Discussion Paper Series No.31
Job reallocation and labor reallocation in Japan:
Evidence from establishment-level data

May, 2003
Hiroshi Teruyama
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Professor, Kyoto University)

The full text is written in Japanese.

(Abstract)

I. Research Background

The unemployment rate exceeding 5% indicates a serious situation in employment which rapidly deteriorated in the 1990s. This paper conducts an empirical analysis of creation and destruction of jobs (employment opportunities) and mobility of labor force (hiring and quitting behavior) underlying the fluctuations in employment with a focus on the 1990s.

II.Purpose and Method of Analysis

Many empirical researches in job creation and destruction do not explicitly consider mobility of labor force. This paper differs from those researches and conducts a comprehensive empirical analysis of job creation and destruction and worker turnovers in Japan on the basis of the same statistical data source obtained through the aggregation of the establishment-level data of the Employment Trend Survey. I examine job and worker reallocation empirically focusing on the relationship between job creation and destruction and declining employment in Japan during the 1990s, and the fluctuations in worker turnovers during the corresponding period.

III. Main Results

  • (1) Job Creation, Job Destruction and Mobility of Labor Force in Japan
    • a.  Regardless of the phase of business cycle there simultaneously exist many businesses that create and lose jobs. Job creation and destruction is more frequent in the small-sized establishments.
    • b.  The flow of labor in the business establishments (hire, separation, personnel relocation, temporary transfer) exceeds the sum of job creation and destruction. Although the job creation and destruction in the large-sized establishments are relatively small, the labor flow is comparable to that of the small-sized establishments. The major part of this labor flow consists of the worker movement between firms, i.e., through the external labor market due to hire and separation, while the share of personnel relocation and temporary transfer is extremely small even in the large-sized establishments.
  • (2) Employment Fluctuation in the 1990s
    • a.  In the beginning of the 1990s a sharp decline in job creation triggered the deterioration in the employment situation in the service sector. In the sector, the trend of decline in job creation continued until the mid of the 1990s and job creation was stabilized after that, or even showed the signs of recovery in the middle-size establishments in the latter half of the 1990s. Nevertheless, the employment growth in the service sector during the corresponding period was zero or negative due to an increase in job destruction.
    • b.  In the beginning of the 1990s the job creation in the manufacturing sector declined, but excluding large-sized establishments there was not a large decrease such as in the service sector. The main reason of the decrease in the employment in the manufacturing sector through the 1990s was a sharp increase in job destruction.
    • c.  In the end of the 1990s the job destruction increased rapidly. However, the number of workers who leave their jobs due to job hopping that drops usually during the depression did not decrease to a substantial degree. The increase in both job destruction and worker turnovers was in the background of the growth in the number of people leaving their jobs in small- and medium-sized establishments.

IV. Conclusion

In the 1990s the job creation was not particularly small. It is rather an increase in job destruction surpassing job creation that greatly contributed to the deterioration in the labor market in the 1990s. Especially, the mass job losses in the manufacturing industries and small- and medium-sized establishments led to a sharp decrease in employment and affected a sharp increase in unemployment rate. In this manner, the deterioration in the employment situation in the latter half of the 1990s resulted from an increase in job destruction rather than from a decrease in job creation. Nonetheless, in the latter half of the 1990s both separations and hires mainly in the service sector and small- and medium-sized establishments increased indicating that turnovers did not stagnate regardless of the depression. In an environment marked by the increase in job destruction in order to stimulate employment it is necessary to strengthen the function of professional intermediation speeding up the information exchange between job seekers and employers to promote worker reallocation in the form of matching the workers and jobs.

  • 1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.
    Tel: +81-3-5253-2111