Silviase/jgov_v1.4_full_ann huggingface dataset:
could have benefited from enjoying long-term employment stability and constant wage increases under the traditional scheme. Therefore, the transformation in the labor practices probably has substantial impacts on the life plan of employees. This paper evaluates the vitality of the Japanese employment system from the perspective of employees.

We think we can provide clear-cut indication of degeneration in the two employment practices based on a combination of a few descriptive analyses. As for seniority wages, we construct the age-earnings profile of a median worker who remained with the same employer, and examine the time-series variation of its slope between 1989 and 2008. We found that the wage profile became much flatter in recent years, especially at the mid- to final-phase of worker's career. More specifically, the flattening of the wage slope gradually developed in the 1990s, and thereafter the slope eventually had “kinked” around age 40 in the most recent observations. This change is most clearly observed for university-educated workers in non-manufacturing in 2007-2008. Next, as for the developments in lifetime employment, we construct two indicators: the share of the lifetime worker and the five-year job retention rate. The first index is defined as the share of those hired by a firm immediately after his/her graduation and continued to work in the same firm until the survey date to total indefinite-contract employees in the same category of age and year. We plot the calculated share separately for the 10-age interval groups. While we could not detect an obvious trend of the share for middle to older-aged male indefinite-contract employees, we found a clear downward trend in the share of young university graduates after the late 1990s. We also calculated the five-year job retention rate of the lifetime workers—defined as the probability that a lifetime worker will continue working with the same employer for an additional five years—as our second measure. The second measure also declined noticeably in the 2000s for highly educated younger workers.

Judging from the long-term trend of the above indices, the two employment practices appear to
have deteriorated simultaneously in recent years. The wage a young worker can expect in his/her future career stage has largely declined, particularly in non-manufacturing. As a result of this change, a higher portion of educated young workers was discouraged from remaining in the same firm (by the less attractive seniority wage curve) and chose to depart from their tenure-track status. On the other hand, older workers probably had to stay in their present jobs, in exchange for their wage growth, since they cannot easily find an alternative job, further facilitating the disproportionate wage drop in the middle to older-aged workers. Overall, the Japanese employment system appears to have begun to show deterioration.

This paper proceeds as follows. Section 2 briefly goes over the concept of the Japanese employment system. Section 3 reviews the empirical findings presented by the previous studies. Section 4 describes our data sources and the three measures of the Japanese employment system used in this study. Section 5 reports our empirical findings and discusses their implications. Section 6 summarizes the findings and concludes the paper.

### 2. The Japanese Employment System and the Focus of Our Analysis

Although the definition of the Japanese employment system varies delicately among the prior studies, $ ^{1} $ most studies regarded the following three components as key elements: (1) seniority-wage, (2) lifetime employment, and (3) enterprise labor unions (Aoki, 1984; Koike, 1984; Hashimoto, 1990). The OECD (1972), which reviewed the Japanese employment system in detail, called them as “Three Sacred Treasures.” Of those three practices, the relevance of labor unions has already weakened in recent years, since the union participation ratio has largely declined and its power in
wage bargaining has largely been corrupted (Tsuru, 2002). Therefore, we focus on recent developments regarding seniority wages and lifetime employment in the following analyses.

Theoretical papers on labor practices often emphasize the mutual complementarity between the seniority-wages and lifetime employment (Milgrom and Roberts, 1992). This concept especially applies to Japanese firms (Itoh, 1994; Aoki, et al., 1996). In the seniority-wage system, wages increase with the number of service years or chronological age in the firm. Although young employees get lower wages than their marginal products, they can expect to enjoy higher payments in later years, as the employer implicitly guarantees the employees the opportunity of harvesting this high wage payment in their later careers within the lifetime employment system. As long as the employees appreciate the merits of this commitment—that is, long-term employment stability and constant wage increases—they remain with the same employer until retirement. From the viewpoint of employers, they benefit from the productivity improvement of the firms probably through the formation of a firm-specific skill. $ ^{2} $ Owing to this institutional complementarity, the Japanese labor system is said to have equilibrium stability. If either practice starts to degenerate, it may be regarded as a signal for the future breakdown of the entire system.

This paper focuses on male indefinite-contract workers, since the Japanese employment system is typically applied to the main support for a patriarchal family. Since firms are trying to replace the full-time or permanent workers with other types of workers, with the flexibility to cut down fixed labor costs under the recent low-growth economy, the percentage of core workers who are protected by the Japanese employment system is gradually decreasing. Although the decrease in the share of the indefinite-contract workers itself could be regarded as a form of degeneration of the Japanese employment system, we do not consider other flexible employment in the following analyses.

While its coverage varies slightly among scholars (see Ohkochi, 1972; Aoki, et al. 1996, for
example), the earlier studies generally characterized lifetime employment by the following two conditions. First, lifetime employees are hired immediately after graduation. This condition is referred to as “infancy.” Second, they remain in the same firm until the mandatory retirement age. In this paper, we moderately relax the second condition to avoid a spurious discovery. Specifically, the lifetime employee referred to in this paper is someone who was hired by a firm immediately after graduation and continued to work in the same firm until the survey date, not until mandatory retirement age. In Japan, early retirement and transfer to other firms in the same corporate group frequently occur among older workers several years before the mandatory retirement age (60) even if they almost satisfy the above two conditions. $ ^{3} $ Unfortunately, our data cannot follow such subtle labor practices. Moreover, the mean wage, and even the median wage, largely fluctuates in a worker’s late 50s, owing to a considerable variation between those who have been promoted and those who have not. This disrupts the stable estimation of wage profile and the proportion of lifetime workers in their later careers. To avoid possible confusion, which is caused by labor practices several year before retirement, we omit the pattern of wage profile and lifetime employment for workers in their late 50s (i.e., 55 to 59) from our empirical analysis.

### 3. Evidence Reported in Previous Studies

The change in Japanese employment practices has recently attracted much attention among labor economists. In the light of history, the practices have experienced many significant events, including oil shocks, the collapse of the bubble economy, Japan’s aging population, and legislative revisions. Each time they adjusted gradually in response to those environmental changes (Moriguchi and Ono, 2004). Specifically, the age-wage profile is said to have flattened substantially since the 1960s and, especially, before 1975 (Genda and Rebick, 2000). Rebick (2001) examined the earnings differential
between men aged 20-24 and 50-54 who have worked for the same company since immediately after school graduation. The earnings differential sharply declined from roughly 4.8 times to 4 times between 1967 and the mid-1970s for university graduates in large-sized firms. It declined gently afterward as the retirement age increased and as the population began to age. Similar findings were also reported in other studies (Clark and Ogawa, 1992a, 1992b; Ariga, et al., 2000; Hattori and Maeda, 2000; Mitani, 2003). However, the flattening of the profile appeared to have slowed down by the mid-1990s, and some researchers observed a stability of the age-wage profile in recent years. Hattori and Maeda (2000), for instance, showed an invariant slope of age-wage profile during the period between 1992 and 1997. Rebick (2001) also described a stable wage differential between junior and senior workers in the 1990s (until 1996).

The lifetime employment scheme also interacted with historical events, but empirical studies have generally found no major changes after the bubble burst. Moriguchi and Ono (2004) noted that firms were under pressure to reduce excess employment after the bubble burst, but their decision was to continue the traditional practice without dismissal. Employment security of core workers was maintained by reducing overtime work, by freezing new graduate recruitment, and by transferring employees to subsidiaries (Chuma, 1994, 2002; Genda and Rebick, 2000; Rebick, 2001; and Kato, 2001). $ ^{4} $ The agreement of low-wage growth with labor unions also contributed to job security and the low rate of the employment mobility throughout the 1990s (Genda and Rebick, 2000; Rebick, 2001). As a result, the lifetime employment system survived through the prolonged stagnation. This fact has been confirmed by the time-series variation of a variety of measures: (i) the proportion of lifetime workers (Chuma, 1997, 1998), (ii) the job retention rate (Chuma, 1997, 1998; Kato, 2001; Kambayashi and Kato, 2009) and (iii) the average years of tenure (Chuma, 1997, 1998; Shimizutani
and Yokoyama, 2009). $ ^{5} $

Ono (2009) comprehensively surveyed prior studies on the Japanese lifetime employment practice, and concluded from various measurements that the findings are still mixed. More concretely, the decreasing ratio of full-time employment in large-sized firms appears to suggest a declining trend in the lifetime employment. However, the probability of surviving job separations at specified durations of employment indicated no significant change in recent years. Those results imply that companies have reduced the inflow into a core workforce but the workers who have entered the core have been protected.

In sum, the Japanese labor practices developed dynamically in response to external shocks. However, a drastic degeneration has not been reported in the seniority-based wage or in the lifetime employment practice after the bubble burst.

### 4. Data Description

### 4.1 Data Sources

This paper uses micro-level data from the BSWS during the period between 1989 and 2008. The BSWS has been widely used for the analysis of Japanese wage structure and employment practice (e.g., Clark and Ogawa, 1992a, 1992b; Chuma, 1997, 1998; Ariga, et al., 2000; Hattori and Maeda, 2000; Ono, 2009; Shimizutani and Yokoyama, 2009). The survey consists of the establishment and individual files. The former file asks each establishment about its basic attributes, including a 3-digit industrial classification number, the total number of indefinite-contract employees in the enterprise to which the establishment belongs (i.e., firm size), and location. $ ^{6} $ The latter contains queries not
only about wages and bonus payments, but also about worker’s age, sex, school career, type of employment, ordinary/part-time status, length of service years and actual number of days/hours worked. Those two files are merged by the establishment identification number. Among the several types of workers, we will focus on male indefinite-contract workers with ordinary status in the following analyses. $ ^{7} $

The BSWS covers the all areas of Japan and all major industries. The industry is originally classified by approximately 400 very detailed industries. We recategorized them into 14 major industries of the 2004 Japan Standard Industry Classification. This includes: (1) mining, (2) construction, (3) manufacturing, (4) electricity, gas, heat supply, and water, (5) information and communication, (6) transport, (7) wholesale and retail trade, (8) finance and insurance, (9) real estate, (10) eating and drinking places, accommodations, (11) medical, health care and welfare, (12) education, learning support, (13) compound service, and (14) services, n.e.c. The establishments are either (1) establishments with 10 indefinite-contract employees or more in both private and public sectors, or (2) private establishments with 5-9 indefinite-contract employees. $ ^{8} $ The population number of establishments to which employees belong was approximately 1.1 to 1.5 million. The annual number of the population employees was roughly 30 to 38 million during our sample period. The sample employees are randomly chosen from each establishment which is selected in the first stage of the two-stage stratified sampling scheme. The numbers of the establishments and the employees finally sampled per year were about 70,000 to 80,000 and 1.4 to 1.6 million, respectively.

We have to mention some issues of the BSWS revision in 2005. The first point of this revision is a change in the way to classify sample employees. Until 2004, the employees were divided into (1)
indefinite-period contract employees, and (2) definite-period contract employees. Since 2005, the employees have been divided into the following five groups: (1) regular employees for an indefinite period contract, (2) regular employees for a definite period contract, (3) non-regular employees for an indefinite period contract, (4) non-regular employees for a definite period contract, and (5) temporary employees. $ ^{9} $ Among those five categories after 2005, (1) and (3) correspond to the indefinite-period contract employees before 2004. In addition, the name “part-time status” was changed to “short-time status” (tanjikan rodosha in Japanese) without any change of its definition. Shinozaki (2008) pointed out that a portion of part-time workers might have been included in ordinary workers after 2005 because establishments, which filled in the individual files of the BSWS, were misled by the new wording, even though the classification of the ordinary and part-time statuses was substantially invariant between before and after the revision. This phenomenon may become a problem, especially when analyzing the behavior of female workers. The results in this paper, however, would not be affected considerably because we confine our focus to male workers. Next, 22 occupations were newly included in the BSWS coverage. Of those, 12 occupations were transferred from the Wage Survey of Outdoor Workers by Occupation owing to its integration with the BSWS. The other 10 occupations were newly supplemented to cover professional jobs, such as dentists, veterinarians, lawyers, certified public accountants, certified social insurance labor consultants, university lecturers, and so on. This paper excludes those new occupations so that we do not capture some spurious time variations of wage structure and employment owing to the added occupations.

The BSWS has some distinctive advantages in describing the transition of Japan’s employment practices. First, it contains an adequate sample size in individual ages, even after conditioning on
some worker’s attributes (e.g., school career and firm size). Second, the BSWS has been conducted every year, though the Employment Status Survey, which was often used in some earlier studies, has been conducted only every five years. This high frequency allows us to closely follow the development of the labor market practices and to identify the juncture of their change.

Of course, there is something to be desired even for our BSWS-based data set. Since the establishments in the BSWS are randomly selected in accordance with the frame of the Survey of Firms and Establishments (SFE), $ ^{10} $ which is revised every three to five years, the BSWS suffers from the large discontinuities that take place before and after the SFE revisions. In our data set, those revisions occurred in 1986, 1991, 1994, 1996, 1999, 2001, and 2004. $ ^{11} $ To avoid the spurious time variation of variables due to this effect, we calculate the population median of wages using a sampling ratio, which is available for each establishment in the BSWS, in drawing out the wage profile. We compute the population-based ratio of lifetime workers and the retention rate in the same way.

It should be noted that the small firms with less than four indefinite-contract employees are dropped from the sample. In this sense, the BSWS cannot describe the wage and employment structure of the whole population in Japan. According to the Labour Force Survey, the proportion of employed persons in the small firms (non-agricultural sector) was approximately 7 percent on an average in the past 20 years (1989 to 2008). However, since this proportion has been fairly stable, ranging from 6.6 to 7.6 percent, the sample restriction should not have significantly affected the BSWS sample population throughout our sample period. Therefore, we believe that our primary conclusion would hardly be influenced by the coverage limitation. In addition, as the Japanese
employment system has been applied mainly to the workers in the large-sized firms, omission of the small firms from the following analyses would not affect the conclusion.

### 4.2 Calculated Measures

To reveal recent developments in Japanese employment practices, this paper calculates the following three measures: (1) age-wage profile, (2) share of lifetime workers, and (3) job retention rate. $ ^{12} $

#### 4.2.1 Age-wage Profile

We use the median of monthly wages for lifetime employees by age to construct the age-wage profile, which is our basic measure to examine the seniority-wage system. Our monthly wage is the total amount of monthly contractual cash earnings and the twelfth part of annual special cash earnings of the previous year. The earlier studies mostly used hourly wages (instead of monthly wages) in their age-wage profile because their focus is on productivity effects of the Japanese employment system. However, here, we use the wage on monthly basis, on purpose, since our interest is mainly on the impact of the changes in the system on the life of employees. $ ^{13} $ Further, we can also avoid the fluctuation of the hourly wage caused by a legislative change by using the monthly wage. Japanese labor standards law was revised in 1988 to lower the upper limit of working hours from 48 to 40. The contractual cash earnings are defined as a before-tax amount of cash wages paid for the surveyed month of June, including overtime allowance. This is deflated by the consumer price index for Japan (general, excluding imputed rent). We use the median values of the monthly wage from 18 (for high school graduates) or 22 (for university graduates) to 54 years of age. The
initial wage at 18 or 22 is normalized to 1 to make the variation of the wage slope more visible. $ ^{14} $

While Rebick (2001) calculated the older-younger wage differential (instead of the age-wage profile), he could only identify changes in the slope of linearly-approximated age-wage profile. In contrast, our measure allows us to see the change in the slope of the profile and to identify the period and age in which the change has occurred during the past two decades.

#### 4.2.2 Share of Lifetime Workers

“Lifetime worker” in this paper is defined as someone hired immediately upon graduating from school and continues to work in the same firm until the survey date. This definition satisfies two necessary conditions for the lifetime employment scheme: “infancy,” and devotion to a single firm. Whether those conditions are satisfied could be confirmed by examining the difference between the worker’s age and the length of his service years. University graduates are regarded as a lifetime workers if the difference is 22 or 23. For high school graduates, a difference of 18 indicates the satisfaction of the conditions. This criterion is the same as the condition of “standard employees” in the BSWS. $ ^{15} $

The share of the lifetime worker in age group i at time t is estimated by dividing the number of lifetime workers by the total number of workers in the same category (age group i and time t). In our empirical analysis, we classify the sample into the following three age categories: (1) 25-34, (2) 35-44, and (3) 45-54. We do not examine the 55-59 age group, because the share for this group would be highly sensitive to the extension of the compulsory retirement age.
This “share of lifetime worker” measure has some advantages. One is its visual suggestiveness. Because it can be calculated annually for each age group, its time-series plot clearly reveals the long-term transition of lifetime employment.

#### 4.2.3 Job Retention Rate

The job retention rate is the probability that a worker retains the same job for a certain length of time. We can calculate this measure by “comparing the number of workers in an age-tenure category in one survey with the number in a later survey in correspondingly higher age and tenure categories” (Hall, 1982, p.718). This measure has thus far been used by a number of previous works (Hall, 1982, Hashimoto and Raisian, 1985, Chuma, 1997, 1998; Kato, 2001, and Kambayashi and Kato, 2009). They focused on the workers in the base year with relatively short tenure, typically 0-4 or 5-10 years. In those cases, the retention rate assesses the degree of labor mobility instead the steadiness of the lifetime employment, especially when those measures are applied to older workers. Of course, the similar measure can be applied to the workers with longer tenure, say more than 5, 15-20, or 20-25 years. However, those tenure categories cannot account for the “infancy” condition.

This paper therefore bases our retention rate on the lifetime workers satisfying the conditions of “infancy” and devotion to a single firm. We calculate the five-year job retention rates of them in seven age groups; 20-24, 25-29, 30-34, 35-39, 40-44, 45-49, and 50-54, for the four time periods, 1990 to 1995, 1995 to 2000, 2000 to 2005, and 2003 to 2008. We first calculate the share of lifetime workers in each age group for the base years of 1990, 1995, 2000, and 2003. Next, we apply the same formula to the five-year older age groups, corresponding to each age group of the first step, in the BSWS five years later (1995, 2000, 2005, and 2008). Finally, we divide the share obtained in the first step by the corresponding value of the second step. For example, the share of the 20-24 group in 1990 is divided by that of the 25-29 group in 1995. The ratio eventually obtained is the five-year job retention rate.