Institute of Social Sciences
University of Tokyo
Panel Survey Project Discussion Paper Series No. 76
March, 2014
Overtime Premium and Working Hours: An Evaluation of the Labour Standards
Act Reform in Japan
Yukiko Asai (Institute of Social Science, University of Tokyo)
Preliminary Draft
Abstract
This study assesses how the increase in the overtime premium paid to workers that carryout excessive overtime influences working hours and the incidence of overtime. In April
2010, the Japanese government reformed the Labour Standards Act, which increased theovertime premium that companies have to pay their employees from 25% to 50%. This
reform, which only applied to overtime of more than 60 hours per month and workers inlarge firms, generated an exogenous variation in the marginal cost to employers ofassigning extra overtime. Based on data derived from the Japanese Life Course Panel
Survey conducted by the University of Tokyo from 2007 to 2013, the presented findings
suggest that despite the overtime premium doubling, there has been no change in working
hours or in the incidence of overtime since the introduction of the reform, suggesting theprevalence of unpaid overtime in Japan.
Keywords: Working hours, Labour Standard, Labour Supply
JEL Classification Codes: J010, J220, J880
Acknowledgements
This paper was presented at the Panel Survey Conference December 2013 of the Institutefor Research on Household Economics (Kakei Keizai Kenkyu-jyo), Japan. The author
would like to thank the conference participants for useful comments and suggestions on
the paper. This research was supported by Grant-in-Aid for Scientific Research (S)(numbers 18103003 and 22223005) from the Japan Society for the Promotion of Science(JSPS). The research support in conducting the panel surveys from the Institute of Social
Sciences, University of Tokyo and the Outsourcing Company is gratefully acknowledged.
The permission to use the panel data was obtained from the Research Planning Committeeof the Japanese Life Course Panel Surveys.
1

1. Introduction
Based on a standard 40-hour working week, almost one in 10 Japanese workers
works more than 20 hours of overtime every week (Labour Force Survey, 2009). This
proportion rises to 18% for men in their thirties. In order to reduce working hours andthus promote work/life balance as well as reduce cases of death from overwork (Karoshi),
the Japanese government reformed the Labour Standards Act in April 2010.1 This reform
required that large firms double the overtime premium paid to workers that work morethan 60 hours of overtime per month (i.e. an average of 15 hours every week) from 25%
to 50%. Note, however, that small and medium-sized enterprises (SMEs) remained
uncovered this by Act. In Japan, companies in different industries are classified as SMEs
according to their number of employees as follows: (i) retail industry: under 50; (ii)services industry: under 100; (iii) wholesale industry: under 100; and (iv) other industries:
under 300. The government is classified as a large company.
This study examines how the reform has affected average overtime hours worked
and the incidence of overtime in Japan. In this regard, the presented findings contributeto the literature in two ways. First, the study assesses the Japanese government’s decision
to regulate excessive overtime in order to provide evidence on how such a regulation
affects overtime hours. Second, I investigate whether strong governmental regulation isable to lower the incidence of overtime in a country where the culture of long working
hours is deeply rooted, which is the intended effect of the reform.
The studies that have focused on how regulations on overtime pay affect working

1

The details of the reform can be found on the Ministry of Health, Labour, and Welfare
website atwww.mhlw.go.jp/stf/seisakunitsuite/bunya/koyou_roudou/roudoukijun/roukikaitei/inde
x.html.
2hours and the incidence of overtime have presented inconsistent results. Trejo (2003)
examines the impact of an increase in the coverage of the overtime premium during 1970–
1989 in the United States and finds no impact on overtime incidence or overtime hours.
He explains this result by stating that the overtime premium could have been offset bychanges in standard hourly wage rates. On the contrary, Hamermesh and Trejo (2000)
investigate the extension of the time-and-a-half pay for working hours above eight hours
per day and find that the overtime penalty substantially reduced the amount of daily
overtime worked compared with other states; this finding is consistent with the labourdemand model presented in Section 2.1.
A number of studies have also focused on reductions in standard working hours,
which have been shown to increase the marginal cost of an additional worker and thereby
decrease employment at the firm level (Hunt, 1999; Crepón and Kramarz, 2002). In thisvein, Kawaguchi, Naito, and Yokoyama (2008) investigate how a reduction in legal
working hours influences actual hours worked by using Japanese data and find that that a
one-hour reduction in weekly legal working hours reduced actual working hours by 0.14
hours, while it did not decrease monthly compensation to workers.
The remainder of this paper is organised as follows. Section 2 presents thetheoretical framework and data sources, section 3 provides an overview of overtime inJapan, section 4 shows the descriptive analysis, section 5 presents the estimation models,section 6 discusses the results, and section 7 concludes.

2. Theoretical Framework and Data Sources2-1. Labour Demand Model
Trejo (2003) uses a labour demand model to show that the regulation of overtime3

pay would reduce the proportion of workers that regularly work more than the standard
40-hour working week. In this study, I extend Trejo’s (2003) model to explain the
distinction between working either fewer or more than 60 hours of overtime per monthfollowing the 2010 reform. A firm’s production function is F=f(E,𝐻𝑡 ), where F is output,
E is the number of employees, and 𝐻𝑡 is monthly working hours. The total labour costis written as follows:

𝐶1 = 𝑤𝐸𝐻𝑡 + 𝑏𝐸, 𝑖𝑓 𝐻𝑡 ≤ 𝐻𝑠

(1)

𝐶2 = 𝑤𝐸𝐻𝑠 + 𝑝𝑤𝐸(𝐻𝑡 − 𝐻𝑠 ) + 𝑏𝐸, 𝑖𝑓 𝐻𝑥 ≥ 𝐻𝑡 > 𝐻𝑠

(2)

𝐶3 = 𝑤𝐸𝐻𝑠 + 𝑝𝑤𝐸(𝐻𝑥 − 𝐻𝑠 ) + 𝑥𝑤𝐸(𝐻𝑡 − 𝐻𝑥 ) + 𝑏𝐸, 𝑖𝑓 𝐻𝑡 > 𝐻𝑥

(3)

where w is the hourly wage rate, p denotes the overtime premium paid to workers thatwork up to 60 hours of overtime per month (overtime workers hereafter), and x denotes
the overtime premium paid to workers that work more than 60 hours of overtime permonth (extra overtime workers hereafter). Further, 𝐻𝑠 is the threshold at which theovertime premium applies and 𝐻𝑥 is the threshold at which the extra overtime premium
applies, while b represents fixed labour costs 2 such as training costs and employee
benefits. w, l, p, x, 𝐻𝑠 , and 𝐻𝑥 are exogenous and the firm chooses E and 𝐻𝑡 . The profit
maximisation problem including this extra overtime premium is thus

𝑌1 (w, b) =max
𝐸,𝐻𝑡 𝑓(𝐸, 𝐻𝑡 ) − 𝑤𝐸𝐻𝑡 − 𝑏𝐸
2

(4)

See Hart (1984) for a detailed discussion of these costs.
4

𝑌2 (w, b, p, 𝐻𝑠 ) =max
𝐸,𝐻𝑡 𝑓(𝐸, 𝐻𝑡 ) − 𝑤𝐸𝐻𝑠 − 𝑝𝑤𝐸(𝐻𝑥 − 𝐻𝑠 ) − 𝑏𝐸

(5)

𝑌3 (w, b, p, x, 𝐻𝑠 , 𝐻𝑥 ) =max
𝐸,𝐻𝑡 𝑓(𝐸, 𝐻𝑡 ) − 𝑤𝐸𝐻𝑠 − 𝑝𝑤𝐸(𝐻𝑥 − 𝐻𝑠 ) − 𝑥𝑤𝐸(𝐻𝑡 −𝐻𝑥 ) − 𝑏𝐸(6)

If the firm profit when assigning extra overtime, 𝑌3 , is higher than that without
assigning overtime or with assigning some overtime, 𝑌1 and 𝑌2 , respectively, the firm
assigns extra overtime to employees; otherwise, the firm lets employees work less than
𝐻𝑥 . The rise in the overtime premium above 𝐻𝑥 (i.e. from 25% to 50%) increases themarginal cost to employers of assigning overtime; therefore, firms respond by reducing
employees’ extra overtime hours. The increase in the extra overtime premium should thus
reduce the proportion of employees that work more than 60 hours of overtime per month(i.e. the government’s intended effect of the reform).

2-2. Labour Supply Model
Individuals choose their working hours based on the hourly wage rate as well ason their preferences for leisure and consumption. In other words, they work until the
marginal value of non-market hours meets the wage rate. Therefore, taking into accountthe counterbalance between demand and supply effects, the new labour market
equilibrium is unknown.
When a firm wants to increase an employee’s working hours, it must pay anovertime premium. If employees have control over their working hours, the reform
incentivises employees to increase the number of overtime hours they work because this5increases their marginal wage (even though it reduces their leisure time; Trejo, 2003; Hart,
2004; Boeri and van Ours, 2013).3
Trejo (2003) predicts that without the regulation on the straight-time wage,
standard hourly wage rates are flexible; therefore, changes in the overtime premium could
be offset by changes in standard hourly wages, leaving working hours and earnings
unchanged.4 The labour supply model thus predicts that a rise in the overtime premiummight either (i) increase overtime hours or (ii) have no effect on overtime hours.
In this study, I investigate whether the supply effects dominate the demand
effects. I also explore the reform effects by examining workers’ preferences. In Japan,
some workers are forced to work overtime, whereas others do so voluntarily because theirbase salaries are low and/or they have a strong preference for work (i.e. workaholics).5
The Labour Standard Law states that when an employee’s activities are under employer
supervision (including implicit and indirect supervision), the employer must pay for thesehours. However, there is a grey area in this law. For example, when an employee
voluntarily chooses to work overtime but nobody stops him or her from doing so, this isconsidered to be under supervision. Therefore, in a firm without strict time management(of which there are many in Japan), employees can work as many extra hours as theywant. By contrast, some employees are forced to work overtime because of staff shortages
or because employers value workers who work long hours and thus favour them for
3

So-called ‘service overtime’ in Japan is unpaid overtime that employees typically
perform voluntarily. In this study, because I cannot identify which overtime is paid andwhich is not, I assume that all overtime is paid. This point is discussed in theConclusion.
4
Trejo (2003) considers that workers and firms can negotiate their own compensation
packages of working hours and earnings.
5
Hamermesh and Slemrod (2008) argue that for workaholics, current work increases
the marginal utility for future work, lowers the utility from a given amount of working,and imposes future costs in terms of health and other problems.
6promotion. Compared with temporary and non-regular workers, regular workers in Japan
enjoy lifelong employment protection and generous benefits. Hence, firms tend to
consider regular workers to be obliged to work as often as they demand. Some firms evencut the fixed cost of labour by reducing their numbers of regular employees, causing
chronic staff shortages. To capture the degree to which employees’ overtime choices areautonomous, workers’ preferences are therefore used in this study.
For those workers that voluntarily choose to work overtime, the labour supply
model is considered to provide a better prediction of the reform effect, namely employees
increase their overtime hours or the reform has no effect on overtime hours, unless firms
have strictly tried to reduce overtime work. On the contrary, for employees that want to
reduce their overtime hours, the labour demand model predicts that the reform would
allow them to do so; however, any change also depends on the degree to which the firm
has tried to reduce extra overtime.

2-3. Data Sources
The data used in this study are derived from the Japanese Life Course Panel
Survey (JLPS) conducted by the Institute of Social Science at the University of Tokyo
from 2007 to 2013.6 The first wave of this survey was conducted on 4800 individuals
aged 20–40, whereas the seventh wave included 3076 respondents. 7 The survey isconducted every January.
In this study, I limit my focus to regular workers that did not change their jobs
during the study period of 2009–2012. I also exclude workers who are discretionary

6
7

The response rate in the first wave is discussed by Miwa (2008).
A new cohort was added in 2011; however, I did not include this in this analysis.
7

workers (e.g. executives), because they are not paid an hourly rate and thus they do not
qualify for the overtime premium. The total sample size in this analysis is therefore 1027.
The working hours and workdays are recorded as ‘working hours per day (including
overtime)’ and ‘the number of workdays in a month’ in the questionnaire. Therefore,
monthly working hours are calculated as ‘working hours per day (including overtime)’
multiplied by ‘the number of workdays in a month’.

3. Overview of Overtime Work in Japan
Excessive overtime work causes physical and psychological fatigue and creates
negative impacts on the family and private lives of workers (Eurofound, 2012). A numberof governmental and private-sector projects have tried to tackle this phenomenon, which
is a major social problem in Japanese society. As shown in Table 1(a), according to JLPS
data, female working hours decreased slightly in 2013; however, there was no substantialchange in working hours between 2009 and 2013. Table 1(b) illustrates that the proportionof extra overtime workers8 did not change substantially over the same five-year period,
showing that approximately 32% of men and 13% of women work more than 60 hours ofovertime every month on average. 9 Although the proportions of male extra overtime
workers decreased slightly between 2010 and 2011, it is unclear whether this decline was
the effect of the reform or a macroeconomic shock.

8

The 220 hours is calculated as four workweeks of 40 standard hours, plus 60 hours ofovertime per month.
9
The proportion is slightly higher than that presented in the Labour Force Survey
because the age distribution is skewed to younger people in the JLPS.
8

Jan. 2009
Jan. 2010
Jan. 2011
Jan. 2012
Sample size

Men
(a)
(b)
211.2 31.9%
213.4 32.5%
213.6 32.7%
212.5 32.2%
661

Women
(a)
(b)
188.2 12.8%
190.3 14.2%
191.1 12.8%
191.8 14.8%
366

Table 1 (a) Average monthly working hours and (b) proportion of extra overtime
workers by sex

Given that some workers have a strong preference to overwork and others arerather forced to overwork, I categorise workers’ preferences as follows: (1) those thatwant to reduce the number of hours worked, (2) those that want to work the same numberof hours, and (3) those that want to increase the number of hours. These preferences aredefined according to worker status in January 2009. 10 Table 2 shows the changes inworking hour preferences from 2009 to 2013 for extra overtime workers (left) and others(right). This table shows that almost 65% of extra overtime workers want to reduce theirhours compared with only 40% of those employees that do not work extra overtime(standard worker hereafter). Nevertheless, approximately 35% of extra overtime workers
are happy to continue working at the same rate (i.e. workaholics). In the following, I
separately analyse (i) those who wish to reduce their hours (those who prefer leisure to
overworking) and (ii) those who wish to increase their hours or work the same hours(those who prefer overworking to leisure). In the next section, I run separate regressions
for these two groups to investigate whether the reform impact varies by working hour
preferences.

10

The 2008 questionnaire did not ask such a question.
9Extra overtime worker
Wish toWish toWish towork thereduceIncrease
same
hours
Hours
Hours
72.4%
27.2%
0.4%
2009
68.9%
30.0%
1.2%
2010
66.5%
31.9%
1.6%
2011
64.6%
34.2%
1.2%
2012
257
Sample sizeStandard worker
Wish toWish toWish towork thereduceIncrease
same
hours
Hours
Hours
35.6%
61.3%
3.1%
38.6%
58.4%
3.0%
39.4%
59.1%
1.6%
42.7%
55.8%
1.6%
762

Table 2 Distribution of workers’ preferences towards working hours according towhether a respondent worked extra overtime in January 2009
Note: Respondents who did not answer the question are excluded from the analysis.

4. Descriptive Analysis
First, I examine changes in working hours based on respondents’ working hours
before the reform and the size of firm for which they work. The treatment group of thisstudy is extra overtime workers that worked in large firms in January 2009 (the reform
was amended in December 2008 and enforced in April 2010).11
Figure 1 shows average monthly working hours by firm size (solid line) andworker status (dashed line). This figure shows only slight changes in working hours
between 2009 and 2012 by firm size, with an approximately 2.9-hour increase in large
firms and a 2.1-hour decrease in SMEs between 2010 and 2011. On the contrary, theaverage working hours of extra overtime workers decreased by 6.1 hours, whereas they
increased by 2.7 hours for standard workers between 2010 and 2011.12

11

The definition of large firms and SMEs is in footnote 2. Results are similar when thetreatment group is defined as extra overtime workers that worked in large firms inJanuary 2008.
12 Working hours significantly reduced from 2008 to 2009, possibly because of theramifications of the collapse of Lehman Brothers and the ensuing global financial crisis.
Because of this reason, I did not define the treatment group status based on 200810

Figure 1 Average monthly working hours by firm size (solid line) and worker status(dashed line)
Figure 2 shows the average monthly working hours for four groups of
respondents divided by firm size and worker status in January 2009. Of these four, theextra overtime workers in a large firm group is the treatment group. There was an
approximately 0.6-hour decrease in working hours for the treatment group from 2010 to2011, but a 10.5-hour decrease for extra overtime workers in SMEs, suggesting that thedecrease in the working hours of overtime workers shown in Figure 1 was mainly driven
by a reduction in working hours in SMEs.
Figure 3 shows average monthly working hours by workers’ preferences. It
shows that there was a 1.8-hour increase in working hours for the treatment group whowant to work more compared with a 1.4-hour decrease for the treatment group who want
to reduce their hours in 2011, suggesting that the reform might have had a heterogeneous
effect on working hours according to different workers’ preferences. 13 However, theworking hours. Note that the results were similar when the treatment group was defined
based on 2008 working hours.
13
In addition, the graph for weekly overtime hours is calculated from the monthly
11reduction in working hours mainly derived from workers in SMEs. Indeed, there was a
9.9-hour decrease in working hours for extra overtime workers in SMEs who want towork more compared with a 10.8-hour decrease for extra overtime workers in SMEs whowant to reduce their hours.

Figure 2 Average monthly working hours for four groups of respondents (defined byworker status and firm size)

working hours minus the standard working hour category. I recode the standard hours
category from the JLPS with the median of each category and exclude workers in a firmwith no standard hours or with varying standard hours by seasons. The sample size
decreases because of non-responses or no-fixed standard hours. The results are similar
to those for monthly working hours.
12Figure 4 shows the incidence of overtime working by group. The incidence ofovertime decreased by 1.6 percentage points in the treatment group, while there was an
8.7 percentage point increase in the proportion for extra overtime workers in SMEs. Again,
the difference in this average level shows that the reduction in the incidence of extra
overtime was mainly from extra overtime workers in SMEs.
Figure 5 shows the incidence of overtime working by group and workers’
preferences. For workers who want to work more (left panel), there was a 3.1 percentage
point increase in the incidence of excessive overtime for the treatment group. On thecontrary, for workers who want to reduce their hours (right panel), there was only a 3.3
percentage point decrease in incidence immediately after the reform (i.e. in 2011).
However, the incidence decreased by 6.5 percentage points in 2012 compared with 2010.
Note that the left panel shows that there was a 5.4 percentage point increase in theincidence of extra overtime workers in SMEs in 2011 and a 10.1 percentage point
decrease for extra overtime workers in SMEs who want to reduce hours, suggesting theexistence of a business trend.
The above figures suggest that firms may not have realised the cost of theincreased overtime premium in 2011, right after the reform; however, they did so slightly
a year later, when then they might have tried to reduce working hours. The reduction ofworking hours mainly comes from extra overtime workers in SMEs. In the following
section, I thus examine the reform effects on working hours and the incidence ofoverworking by using a regression framework.

145. Estimation Models
The effects of the reform on changes in monthly working hours and the incidenceof overtime work are investigated in this section by adopting a policy evaluation
framework (see Card and Krueger, 1994; Gruber, 1994; Angrist and Krueger, 1999;
Angrist and Pischke, 2008). Here, I compare the relative outcomes of workers that worked
extra overtime hours in large firms with those that did not work extra overtime hours orwith those in SMEs, before and after the reform.
The outcome is changes in monthly working hours/the incidence of extra
overtime. Since the reform was only enforced in large firms, the outcomes of workers inlarge firms are compared with those in SMEs before and after the reform (recall that thereform does not apply to workers in SMEs). Moreover, I include a dummy variable forwhether an individual worked more than 60 hours of overtime in the pre-reform period.
Then, the outcomes of workers who work extra hours are compared with those of workers
who did not by using a difference-in-difference (DID) model14. In addition, the interactionof these two effects (extra overtime hours and firm size) is included in a triple difference(TD) model. The effect of the reform is then measured as coefficients of the treatment
dummy in the interaction term in a TD model – average treatment effects on the treated.
The DID estimation equation is as follows:∆yib = ρR b + Xib τ + εib

(7)

14

Difference between before and after, and between an individual worked more than 60 hours ofovertime and those of workers who did not.
16

where ∆𝑦𝑖𝑏 represents changes in the outcomes of individual i in group b. I estimate twooutcomes: monthly working hours in the logarithmic form and the incidence of excessive
overtime work (taking the value of 1 if a worker is deemed to be an extra overtime worker
and 0 otherwise). 𝑋𝑖𝑏 is a vector of observed characteristics before the reform (sex, age,
job title, industry). 𝑅𝑏 is either an overwork dummy (when a worker was an extra
overtime worker in January 2008) or a firm size dummy. The estimator in equation (7)assumes that if there were no reform, the outcome changes for workers in SMEs would
have been similar across all worker types.
The TD model is stated in equation (8):∆yibw = ρFirmb + βOverw + γFirmb ∗ Overw + Xibw τ + εibw

(8)where Over is the indicator variable that identifies extra overtime workers before thereform and 𝐹𝑖𝑟𝑚 is the indicator variable of large firms. γ is thus the average treatment
effects on the treated. Further, I estimate (8) according to workers’ preferences, namely
those who want to work more hours and those who want to reduce their hours. Models byworkers’ preferences were investigated in order to examine how the reform effects varyby the autonomous nature of working hours. All models are estimated by using a linear
probability model.

6. Results and Discussion
The descriptive statistics of workers by worker status and firm size in January
2009 are shown in Table 3. Although the four groups show a similar age, their othercharacteristics differ. For example, extra overtime workers are more likely to be men and17have a job title above the section leader. The industry classification also varies according
to groups; however, the majority of workers work in either the manufacturing or the otherservices industries. The models estimated below include these covariates to control forthe pre-reform difference in characteristics.
The estimated coefficients on changes in monthly working hours or the incidenceof overtime work from models (7) and (8) are shown in Table 4. The DID model in rows
1 and 2 shows a 4.4% decrease in working hours for overtime workers and a 3.3% increase
for workers in large firms. By contrast, the TD model shows no difference in working
hours for extra overtime workers in treatment firms. No significant treatment effects werethus found for total working hours. In order to check the robustness of the results, analternative model (i.e., outcome is changes in monthly working hours from 2010 to 2012)
was run to investigate the mid-term treatment effects. Rows 1 and 2 shows similar results
to the main model; again, the TD model estimates show no significant effect of the reform.
The incidence of extra overtime models shows similar effects. There is no significant
effect of the reform on the changes in incidence of extra overtime.

18

Female (=1)
Age
Job Title
No Title
Team Leader
Section Leader
Department Chief
Department manager
Non-respondent
Industry
Agricultural
Construction/mining
Manufacturing
Electricity/waterTransportation/operator
Wholesale
Retailing/Food Service
Insurance/Banking/Real Estate
Other services
Government
Sample SizeExtra
overtime
worker&Large Firm
10.6%
34.1

Extra
overtime
worker
&SME
24.4%
34.1

Standard
worker&Large Firm

Standard
worker
&SME

39.1%
34.0

44.1%
33.5

44.7%
8.9%
26.0%
17.9%
1.6%
0.0%

69.1%
7.3%
6.5%
8.1%
5.7%
0.8%

69.5%
7.0%
13.6%
6.6%
0.9%
0.0%

78.3%
8.9%
6.8%
3.2%
2.1%
0.4%

0.0%
4.9%
24.4%
0.0%
5.7%
4.1%
10.6%
7.3%
38.2%
4.9%
123

0.0%
22.0%
21.1%
0.0%
8.9%
8.1%
5.7%
2.4%
31.7%
0.0%
123

0.0%
0.7%
28.6%
1.3%
2.4%
4.6%
5.5%
5.7%
38.9%
12.3%
455

0.4%
6.8%
29.9%
0.7%
6.8%
5.3%
4.6%
4.6%
38.4%
2.5%
281

Table 3 Descriptive statistics of workers by worker status and firm size
(characteristics are at the time of January 2009)19

Working hour 2011-2010
DID
extra
overtime

DID
firm size

DID
extra
overtime

DID
extra
overtime-0.0446**(0.0223)-0.0175(0.0197)-0.0301(0.0243)-0.0465(0.0329)-0.118(0.106)-0.0448**(0.0223)-0.0116(0.0194)-0.0194(0.0244)-0.0380(0.0317)-0.104(0.0862)0.0145(0.0502)-0.00386(0.0421)0.113*(0.0666)-0.0736(0.0762)-0.00470(0.0364)0.0131(0.0500)-0.0174(0.0420)
0.0932(0.0661)-0.0797(0.0745)-0.00792(0.0308)

0.0131(0.0501)-0.00928(0.0426)0.108(0.0674)-0.0687(0.0757)
0.00940(0.0439)-0.0734(0.0456)
0.0152(0.0443)0.0473(0.0574)-0.0421(0.0905)
0.00747(0.0387)-0.0738(0.0457)
0.00769(0.0440)0.0336(0.0583)-0.0538(0.0929)-0.0128(0.0284)-0.0726(0.0458)
0.0176(0.0450)0.0497(0.0590)-0.0443(0.0903)0.00129(0.0415)0.208***(0.0208)
0.00766(0.0239)0.171(0.140)0.0361(0.0456)
0.0233(0.0587)-0.0112(0.0217)-0.0297(0.0229)0.00568(0.0154)-0.0341(0.0304)0.0203(0.263)0.237***(0.0194)
0.00417(0.0234)0.171(0.139)0.0346(0.0457)
0.0209(0.0587)-0.0201(0.0219)-0.0358(0.0237)0.00166(0.0156)-0.0406(0.0312)0.00444(0.261)0.221***(0.0197)
0.0220(0.0241)0.166(0.139)0.0410(0.0451)
0.0256(0.0586)-0.0148(0.0221)-0.0341(0.0232)0.00417(0.0155)-0.0424(0.0312)0.0154(0.263)0.322***(0.0212)0.0116(0.0236)
0.137(0.114)0.0338(0.0471)
0.0311(0.0569)-0.0331(0.0244)-0.0215(0.0236)-0.0198(0.0164)-0.0145(0.0312)0.287(0.270)0.350***(0.0200)
0.00154(0.0233)
0.140(0.114)0.0293(0.0469)
0.0274(0.0570)-0.0429*(0.0251)-0.0275(0.0242)-0.0242(0.0166)-0.0181(0.0319)0.274(0.267)0.333***(0.0204)
0.0220(0.0238)
0.133(0.114)0.0377(0.0467)
0.0326(0.0570)-0.0356(0.0248)-0.0247(0.0240)-0.0209(0.0165)-0.0211(0.0320)0.281(0.272)-0.0726**(0.0338)-0.0489(0.0664)-0.166(0.109)-0.0555(0.0667)-0.103*(0.0610)0.00856(0.0566)-0.0514(0.0706)-0.0305(0.0330)-0.0494(0.0425)-0.622(0.450)-0.0411(0.0387)-0.0657(0.0648)-0.160(0.112)-0.0631(0.0655)-0.108*(0.0603)-0.00381(0.0554)-0.0584(0.0722)-0.0360(0.0329)-0.0515(0.0430)-0.635(0.449)-0.0624(0.0381)-0.0389(0.0684)-0.169(0.110)-0.0519(0.0668)-0.101*(0.0611)0.00609(0.0569)-0.0545(0.0708)-0.0315(0.0329)-0.0556(0.0432)-0.627(0.449)-0.0347(0.0295)
0.0395(0.0581)-0.139(0.121)-0.0593(0.0605)-0.0400(0.0733)
0.0335(0.0561)-0.0121(0.0605)-0.0117(0.0320)-0.00350(0.0412)-0.339(0.455)-0.0215(0.0327)0.0113(0.0556)-0.128(0.122)-0.0722(0.0597)-0.0467(0.0726)
0.0240(0.0556)-0.0156(0.0606)-0.0159(0.0320)0.00386(0.0415)-0.337(0.454)-0.0385(0.0328)0.0350(0.0590)-0.138(0.120)-0.0608(0.0609)-0.0407(0.0738)0.0346(0.0560)-0.0108(0.0600)-0.0113(0.0321)-0.00102(0.0419)-0.338(0.456)

Observations982
R-squared
0.025
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

982
0.023

982
0.030

982
0.029

982
0.022

982
0.031

982
0.021

982
0.016

982
0.021

982
0.013

982
0.008

982
0.014

Section Leader
Department Chief
Department manager
Non-respondent

0.0266*(0.0151)-0.0121(0.0263)
0.0435(0.0278)-0.0698*(0.0420)-0.0794(0.0532)
0.0174(0.0288)0.0174(0.0717)-0.0234(0.0269)
0.0447(0.0278)-0.0721*(0.0421)-0.00442(0.0262)0.0214(0.0279)-0.0307(0.0422)0.00632(0.0261)0.0201(0.0278)-0.0280(0.0420)-0.0642(0.0497)-0.00651(0.0279)-0.0101(0.0669)-0.00536(0.0261)
0.0216(0.0280)-0.0310(0.0424)0.0266(0.0280)-0.0687*(0.0353)TD-0.0433*(0.0222)-0.00598(0.0187)-0.0138(0.0235)-0.0431(0.0326)-0.119(0.0888)

Job title
Team Leader (ref: no title)-0.0255(0.0268)
0.0451(0.0278)-0.0728*(0.0420)

DID
firm size-0.0317(0.0232)-0.0169(0.0176)-0.0131(0.0258)-0.0392(0.0341)-0.161(0.107)Age square

0.00100(0.0146)-0.0169(0.0162)
0.0264(0.0237)

DID
extra
overtime-0.0308(0.0231)-0.0205(0.0181)-0.0206(0.0257)-0.0467(0.0349)-0.174(0.125)Age-0.0722*(0.0391)TD-0.0294(0.0232)-0.00912(0.0167)-0.00532(0.0250)-0.0462(0.0362)-0.181(0.112)

Female (=1)

-0.0613***(0.0207)0.0188(0.0166)
0.0165(0.0298)-0.00736(0.0150)-0.0160(0.0164)0.0248(0.0241)

DID
firm size-0.00996(0.0137)0.00180(0.0159)-0.00506(0.0234)

Extra overtime worker*Large firm

-0.00960(0.0152)-0.0157(0.0163)0.0241(0.0240)

TD

Incidence of extra overtime
2012-2010-0.0193(0.0146)
0.00286(0.0160)-0.00710(0.0235)

0.0327**(0.0146)

Large firm(=1)-0.0547***(0.0162)

DID
firm size

Incidence of extra overtime
2011-2010-0.0569***(0.0192)
0.0227(0.0160)
0.0290(0.0284)-0.0163(0.0144)0.00224(0.0160)-0.00600(0.0235)

Extra overtime worker(=1)-0.0444***(0.0155)

TD

Working hour 2012-2010-0.00398(0.0264)

Industry

Agricultural (ref: Manufacturing)
Construction/mining
Electricity/waterTransportation/operator
Wholesale
Retailing/Food Service
Insurance/Banking/Real Estate
Other services
Government
Constant

Table 4 Estimated coefficients on changes in working hours and the incidence of
extra overtime
Note: Covariates are from the time of January 2009. Robust standard errors are in parentheses.
Clustered standard errors were smaller than the robust standard errors (Donald and Lang, 2007;
Angrist and Pischke, 2008).

To assess whether the effect of the reform varies by workers’ preferences, I run
models (7) and (8) separately for workers who want to work more and those who want to
reduce their hours. The results show no significant effect of the reform (Table 5). The
coefficients shown are the treatment effect terms 𝜌 in model (7) and 𝛾 in model (8). As
20

shown in row 2, there was a 6.6% decrease in working hours for extra overtime workers
and a 6.5% increase in working hours for workers in large firms after the reform. However,
the TD model results show no significant treatment effect, while the models of theincidence of overtime show no significant effect of the reform either.

Working hour 2011-2010

Workers who want towork more(n=545)Workers who want to
reduce their hours(n=436)

Working hour 2012-2010

Incidence of extra overtime
2011-2010

Incidence of extra overtime
2012-2010

DID
extra
overtime

DID
firm size

TD

DID
extra
overtime

DID
firm size

TD

DID
extra
overtime

DID
firm size

TD

DID
extra
overtime

DID
firm sizeTD-0.02090.01470.0603-0.0133

0.01800.0422-0.0315-0.01200.0797-0.000488-0.00593

0.0427(0.0312)(0.0138)(0.0670)(0.0329)(0.0153)(0.0695)(0.0667)(0.0344)(0.124)(0.0674)(0.0333)(0.126)-0.0663**

0.0650**0.00162-0.0800***

0.04520.00837-0.0656

0.0950**-0.0872-0.0968**

0.00689-0.0508(0.0263)(0.0292)(0.0424)(0.0265)(0.0289)(0.0428)(0.0535)(0.0470)(0.100)(0.0470)(0.0426)(0.0914)

Table 5 Estimated coefficients of working hours and worker status

The presented results are consistent with those of Trejo (2003). Because the 2010reform did not restrict standard wages, changes in the overtime premium might have been
offset by changes in standard hourly wages, leaving working hours and total earnings
unchanged.15 The other possible explanation of the presented result is the existence of
unpaid overtime. So-called ‘service overtime’ is prevalent in Japan, where workers do notreport their actual working hours. According to the Ministry of Health, Labour, andWelfare, 1312 firms in fiscal year 2011 received a penalty for using service overtime,with these unpaid overtime hours eventually paid to 117,002 employees.16 The findingsof this study thus confirm the importance of the government considering stronger
regulations towards unpaid work, while regulating the standard wage might also be an

15

The coefficients from the changes in wages regressions show no significant effect of
the reform either. The results are shown in Table A1.
16
The details can be obtained from the Ministry of Health, Labour, and Welfare
website: http://www.mhlw.go.jp/stf/houdou/2r9852000002lrsc.html.
21effective strategy considering that some workers overwork because their wages are solow. Because long working hours are deeply rooted in Japanese culture, a drastic reformis thus necessary to improve working conditions considerably.

7. Conclusion
In this study, I evaluated the reform of the Labour Standards Act enacted in April
2010, which tried to reduce excessive overtime and thus promote better work/life balance
for employees by doubling the overtime premium for extra overtime workers, as they aredescribed herein, that work in large firms. The reform generated an exogenous variationin the marginal cost of assigning extra overtime, which I exploit in order to examine how
the reform affected working hours and the incidence of excessive overtime.
The estimation results from the DID and TD models showed that there were nochanges in working hours or in the incidence of overworking following the introductionof the reform for the treatment group. This finding also applied to workers that wanted toeither increase or reduce their total number of hours worked. The findings presented
herein suggest the prevalence of unpaid overtime in Japan. For example, workers mightchoose to work longer hours in order to gain recognition from their bosses and/or earn
future promotions. This study thus highlights the importance of the Japanese government
considering regulation on unpaid overtime.
For further research, it is important to investigate how standard wages havechanged after the reform, because as Trejo (2003) suggested, the examined changes in theovertime premium might have been offset by changes in standard hourly wages, leaving
working hours and earnings unchanged. It is also important to document changes in
unpaid work. Unfortunately, this study fails to capture how many overtime hours are paid
22and unpaid. Further investigation on the possibility that the reform might have reduced
paid extra overtime hours is needed.

AppendixHourly wage 2011-2010
DID
DID
extra
TD
firm size
overtime

Hourly wage 2012-2010
DID
DID
extra
TD
firm size
overtime-0.0865(0.193)-0.0169(0.235)-0.139(0.217)-0.177(0.196)0.293(0.306)-0.144(0.209)-0.177(0.195)0.292(0.305)-0.230(0.213)-0.331(0.359)0.584(0.476)-0.137(0.216)-0.186(0.197)0.307(0.307)0.698*(0.410)0.363(0.313)-0.399(0.444)0.897(0.895)0.101(0.226)

0.699*(0.410)0.377(0.320)-0.386(0.452)0.879(0.895)0.0468(0.238)0.0663(0.257)0.386(0.546)
1.146(2.128)0.606(0.420)0.134(0.214)-0.0812(0.573)0.629(0.382)0.0344(0.246)0.157(0.377)2.352(3.001)964
0.016

0.0190(0.268)0.344(0.523)
1.166(2.126)0.588(0.405)0.127(0.205)-0.0776(0.566)
0.637*(0.377)
0.0362(0.242)0.185(0.384)2.398(3.013)964
0.017

Extra overtime worker(=1)
Large firm(=1)-0.0131(0.250)Extra overtime worker*Large firm
Female (=1)
Age
Age square
Job title
Team Leader (ref: no title)
Section Leader
Department Chief
Department manager
Non-respondent
Industry
Agricultural (ref: Manufacturing)
Construction/mining
Electricity/waterTransportation/operator
Wholesale
Retailing/Food Service
Insurance/Banking/Real Estate
Other services
Government
Constant
Observations
R-squared
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1-0.160(0.245)0.0992(0.247)-0.197(0.383)-0.105(0.233)0.0909(0.246)-0.181(0.382)-0.158(0.253)-0.621(0.418)0.481(0.545)-0.154(0.242)
0.0931(0.246)-0.187(0.382)0.673(0.410)0.341(0.317)-0.417(0.448)0.904(0.899)0.118(0.313)0.443(0.549)0.296(0.401)-0.276(0.398)0.228(1.214)0.505**(0.213)0.440(0.552)0.248(0.421)-0.355(0.401)0.177(1.220)0.398*(0.226)0.425(0.550)0.271(0.409)-0.295(0.413)0.239(1.228)0.538*(0.280)-0.0712(0.283)0.415(0.533)
1.179(2.134)0.577(0.416)0.150(0.214)-0.0906(0.573)0.618(0.387)0.0353(0.248)0.203(0.380)2.618(3.029)
964
0.018

0.160
(0.277)0.893(0.585)3.264(2.713)0.545**(0.259)0.950**(0.435)-0.705(0.626)0.714(0.688)0.322(0.296)
0.669**(0.292)-1.408(3.870)
956
0.026

0.229
(0.278)0.740(0.567)
3.320(2.715)0.485*(0.249)0.911**(0.431)-0.749(0.613)0.695(0.684)0.298(0.291)0.709**(0.300)-1.380(3.900)956
0.024

0.0652(0.272)0.931(0.588)3.284(2.719)0.526**(0.264)0.964**(0.440)-0.707(0.625)0.703(0.686)0.320(0.297)0.699**(0.298)-1.225(3.913)956
0.026-0.361(0.281)

Table A1. Estimated coefficients on changes in hourly wage
Note: Covariates are from the time of January 2009. Robust standard errors are in parentheses.

23

Figure A1 Weekly overtime hours by work status and firm size

24

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Boeri, Tito and Jan van Ours (2013) The Economics of Imperfect Labor Markets.
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Crepón, B. and F. Kramarz (2002) "Employed 40 Hours or Not Employed 39: Lessons
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Donald, Stephen and Kevin Lang (2007) Inference with Difference-in-Differences andOther Panel Data, Review of Economics and Statistics, Vol. 89, No. 2, pp.221-233.

Eurofound (2012) Fifth European Working Conditions Survey, Publications Office of theEuropean Union, Luxembourg.
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Gruber, Jonathan(1994) The Incidence of Mandated Maternity Benefits, The American
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Hamermesh , Daniel and Stephen Trejo (2000) The Demand for Hours of Labor: Direct
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Hart, Robert (2004) The Economics of Overtime Working, Cambridge University Press.

Hunt, Jennifer (1999) Has Work-Sharing Worked in Germany?, Quarterly Journal of
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Hamermesh, Daniel and Joel B. Slemrod (2008) “The Economics of Workaholism: Weshould not have Worked on this Paper,” The B.E. Journal of Economic Analysis & Policy:
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27

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