ESRI Discussion Paper Series No.232
Is the Japanese employment system degenerating?
Evidence from the Basic Survey on Wage Structure

Junya Hamaaki
Research Officer, Economic and Social Research Institute
Masahiro Hori
Research Fellow, Economic and Social Research Institute
Saeko Maeda
Research Officer, Economic and Social Research Institute
Keiko Murata
Special Fellow, Economic and Social Research Institute
Professor, Graduate School of Social Sciences, Tokyo Metropolitan University


Despite the prolonged recession and sizable environmental changes after the burst of the Japanese economic bubble, a drastic degeneration has not been seen, either in seniority-based wages or in Japan's practice of lifetime employment, in the previous studies analyzing the negative impact of "the Lost Decade" (1992 to 2002). This result might indicate that the Japanese labor systems have a structural steadiness. This paper analyzes recent 20-year microdata from the Basic Survey on Wage Structure in an effort to examine recent developments in those two practices for male, full-time employees. First, regarding seniority-based wages, we investigate the development of the age-wage profile for lifetime employees, who are defined as those hired by a firm immediately after graduation and continued to work in the same firm until the survey date. We find that the wage slope gradually flattened in the 1990s; thereafter it eventually "kinked" around age 40 in 2007-2008. This change is most clearly observed for university graduates in the non-manufacturing industry. Second, regarding lifetime employment, we examine developments in the share of lifetime employees and five-year job retention rate. While we cannot detect any clear signs of changes for middle to older-aged workers, we find an evident downward trend of the share of lifetime workers for young university graduates after the late 1990s. The job retention rate also declined noticeably in the 2000s for highly educated young workers. Those results indicate that the two employment practices have been deteriorating simultaneously in recent years. Owing to the slow down of wage increases later in their careers, a higher portion of educated young workers may chose to depart from the tenure-track position. On the other hand, many older workers probably have to stay in their present jobs, in exchange for wage growth, since it is more difficult for them to find alternative jobs.

Structure of the whole text (PDF-Format 1 File)

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  2. page1
    1 Introduction
  3. page4
    2 The Japanese Employment System and the Focus of Our Analysis
  4. page6
    3 Evidence Reported in Previous Studies
  5. page8
    4 Data Description
    1. page8
      4.1 Data Sources
    2. page12
      4.2 Calculated Measures
  6. page15
    5 Empirical Findings
    1. page15
      5.1 Changes in the Wage Profile
    2. page16
      5.2 Changes in the Share of Lifetime Workers
    3. page18
      5.3 Changes in the Job Retention Rate
    4. page20
      5.4 Discussion
  7. page23
    6 Conclusion
  8. page24
    Appendix A. Reason for Focusing on Small Subgroups
  9. page26
    Figures and Tables
  10. page37
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