Employment and Wage Adjustments at Firms under Distress in Japan: An Analysis Based upon a Survey
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.
The decade long stagnation of the economy left visible and perhaps also invisible scars in many facets of the Japanese economy. During the decade of the stagnation (take,1992-2001, for example, as the decade), the economy lost 3.5million regular and full time jobs. Although the precise breakdown is not readily available, the severity of the recession is shown in the proportion of the job loss due to outright layoffs, rather than those by not replacing retiring employees. Figure 1 can be used to compare the lost decade with past recessions. The share of layoffs was indeed large during the period. Still it is comparable to the figure in the recession after the first oil shock.