Silviase/jgov_v1.4_full_ann huggingface dataset:
## ABSTRACT

We examine the period from 1991 to 2002 to document the effects of a changing Japanese labor market on trends in the cost of job change. During this period, job change penalties and the extent to which they were age related grew. Evidence is also found of a diminishing specificity in human capital (in firm-size and industry) for job changers in the Japanese labor market. While penalties from changing industries were diminishing, occupational change penalties grew. As might be expected, older workers and workers leaving the largest firms suffered the largest wage losses from job change. Older workers were also harmed more by involuntary job separations. In percentage terms, young females have larger wage losses than young males but older females have smaller losses than older males. This pattern is masked in considering only the overall result of little gender difference in the cost of job change.

Theme: Microeconomics of unemployment

Keywords: Displacement

JEL Classification: J31, J41, J63, J6
1. Introduction .....3
2. Employment Trend Survey Microdata: 1991-2002 .....7
3. Factors Influencing Job Change Costs: Empirical Estimates .....10
4. Conclusion .....13
5. Reference .....15
### 1. Introduction

The Japanese labor market in the 1990s might be said to have been one of both change and continuity. While the prolonged recession in Japan had an impact on measurable aspects of the labor market, including rising unemployment, a gradual reduction in training expenditures $ ^{1} $ and shifting employment shares across industries, scholars argue that the basic characteristics of the employment system did not change. $ ^{2} $ This paper examines one aspect of the effect of the changes in the labor market on workers, namely, trends in job displacement penalties. A second question addressed is whether evidence can be found for human capital that is firm, industry, occupation or career specific and whether trends in these can be identified in light of diminishing training expenditures at the firm level.

There are reasons to believe changes in job displacement penalties were taking place during the time period under consideration. A rising level of unemployment presumably increases the cost of involuntary job change as continuously employed workers are somewhat shielded from conditions in the outside labor market relative to those who must find new employment. This is especially true in Japan where internal labor markets are particularly important and pay has been traditionally more determined by seniority and individual qualifications than by the market pay rate of the job. At the same time, falling job training expenditures should have the opposite effect as worker lose less firm specific human capital upon job change. The consequences of the changes taking place in the labor market on job
displacement penalties in the world’s second largest economy have not been previously investigated.

A worker’s return to firm tenure, often interpreted as a payment for the accumulation of firm specific human capital, has long been observed in wage equations. The results of some recent papers call into question whether specific capital accrues from firm tenure, as opposed to industry, occupation or career tenure. The increase in the cost of job displacement from industry change has been noted in several papers. $ ^{3} $ Neal (1995) argues that previous studies on the returns to experience have attributed returns to firm specific tenure while overlooking the important effects of industry specific capital. Parent (2000) also finds wage profiles are more dependent on industry specific human capital than firm specific human capital. More recently, Kambourov and Manovskii (2005) note the importance of occupation specific human capital. They find returns to occupational tenure to be substantial and, when accounted for, that returns to firm or industry tenure are of much less importance. Finally, with data from the Danish labor market, Munch (2006) discounts notions of firm, industry or occupational specific capital in favor of the idea that the capital workers gain is actually career specific where career change is defined as a change in both industry and occupation.

We examine the period from 1991 to 2002 to document the effects of a changing labor market on the cost of job change and the source of and trends in specific capital. During this period, job change penalties and the extent to which they were age related grew. Evidence is also found of a diminishing specificity in human capital (in firm-size and industry) for job changers in the Japanese labor market occurring around 2000 that perhaps reflected the gradual reduction in on the job training expenditures. While penalties from changing industries were diminishing, occupational change penalties grew. As might be expected, older workers and workers leaving the largest firms suffered the largest wage losses from job change. Older workers were also harmed more by involuntary job separations. Young females have larger wage losses than young males but older females have smaller losses than older males. This pattern yields little overall gender difference in the cost of job change.

Numerous studies have investigated job displacement penalties in the US labor market. Surveys of this literature were conducted by Hamermesh (1989), Fallick (1996) and Farber, Haltiwanger, and Abraham (1997). Estimates of US job displacement penalties are in the range
of 15 to 40% [Topel 1993]. Larger penalties are associated with more firm and labor market experience, periods of higher unemployment and changing industry upon re-employment. Owing to the difficulty of obtaining data, studies of job displacement penalties in the Japanese labor market are quite scarce. Since the comprehensive study by Abe, Higuchi, Nakamura, Kuhn and Sweetman [2002], there has been no research with nationally representative data to establish how changes taking place in the Japanese labor market have affected the wage implications of job change. Abe et al. studied the effects of job change on wages that took place in 1995, a period of moderate GDP growth (2.4%) and unemployment (3.2%). We examine the survey data from the same source but over the period from 1991 through 2002.

Wage changes in this survey data are classified into five categories: over 30%, 10% to 30%, 10% to -10%, -10% to -30% and over -30%. When the following values are assigned to workers in each of the these categories, 30%, 15%, 0%, -15% and -30%, the results of Abe et al. indicate that, when all sources of job separation both voluntary and involuntary are grouped together, on average male and female workers benefited slightly from job change. For both genders, the average benefit from job change was about 2.2%. The gains of young workers were partially offset by the losses of older workers, especially for men. When only involuntary job changes are considered and those transferred temporarily to other companies are excluded (the practice of shukko), the average male lost 4.3% and the average female gained .3%. The mean loss for men results from the losses of men 45 and over more than offsetting the gains of younger men. Nearly 28% of men 45 and over suffered wage losses of more than 30%. Abe et al. attribute the large losses for men over 55 to the traditional practice of mandatory retirement in Japan and to low paid or part-time work after retirement. Large wage reductions for older female job changers are much less frequent. This is suggested by Abe et al. to result because females are less often subject to mandatory retirement.

Using data from 2000 through 2003, Bognanno and Delgado [2005] find much larger job displacement penalties in Japan than Abe et al. However, their sample includes only workers successfully re-employed through the services of a job placement firm and, because of the specialized sample, their results can not be generalized to the labor market as whole. A study with nationally representative data is necessary to substantiate whether job displacement penalties have grown larger over time and whether these penalties have become more strongly related to age.
Theory offers several explanations for greater job displacement penalties for older workers. Four potential sources of job displacement penalties include the loss of specific human capital, the loss of a superior job match, the loss of possible union or industry wage premiums, and the loss of seniority [Fallick 1996]. If specific human capital, job match quality and wage premiums are increasing in job tenure, older workers should have greater losses upon job displacement. Regarding specific human capital, Koike [1988] has stressed the significance of on the job training in Japan and Rebick [2005] notes that, in contrast to formal education, on the job training it is harder for employees to encapsulate for a new employer, thus making employment change more costly.

Another explanation follows Lazear’s [1979] model of delayed compensation. It offers both an explanation of the institution of mandatory retirement and of why mandatory retirement might be followed by large wage losses for older workers with greater tenure. Workers in the model are motivated by a contract that pays them below their marginal product early in their firm tenure and more than their marginal product later. Motivation derives from the incentive to continue on in the firm in order to collect the premium at the end of the contract. Workers separated from their firms late in their tenure, lose the amount that they earn above their marginal product when they face the outside labor market. Mandatory retirement in the model is a device to protect the firm from employees wishing to collect wages exceeding their marginal products beyond the anticipated retirement date.

Lazear’s model may be particularly applicable in Japan because mandatory retirement is both legal and prevalent [Clark and Ogawa, 1992] and because, relative to the US and the OECD, firm tenure is longer [Hashimoto and Raisian, 1985], especially for men [Rebick]. As of 2002, almost all firms had mandatory retirement [JILPT, 2005, p.53, Table 3-27]. Long tenure is a necessary condition for the operation of a delayed payment contract. In support of the operation of delayed payment contracts, Clark and Ogawa found that earnings profiles were steeper in firms with earlier ages of mandatory retirement. More support for the model is comes from the observation that workers reemployed by their firm after mandatory retirement typically take wage reductions of 50-70% [Rebick]. Additionally, Japanese firms provide workers a substantial payment upon retirement. The amount of this payment is heavily reduced should separation
occur for workers with little tenure, for workers who voluntarily quit or for workers who are dismissed. $ ^{4} $

### 2. Employment Trend Survey Microdata: 1991-2002

The Ministry of Health, Labor and Welfare has been conducting the Employment Trend Survey twice a year at the end of June and at the end of December since 1964. The purpose of the survey is to observe the labor mobility between regions, industries, establishment size, occupation, and so forth. The survey encompasses 14,000 establishments with five or more regular employees sampled from all industries except Agriculture, Forestry and Fisheries, domestic services, educational services, and services by foreign governments and international agencies. Following Abe et al., because the labor mobility in public sector is so different from that in private sector, public sector employees have been deleted from the sample analyzed. We use the Employment Trend Survey micro-data with the permission of the Economic and Social Research Institute (ESRI), a Cabinet Office in the Japanese government.

An average of 84,408 newly hired workers per year were sampled in the sample establishments in the years from 1991 to 2002. Newly hired workers are separated into three categories: (1) school leavers (graduates in the survey year); (2) unemployed and inexperienced (those having been unemployed more than one year or those in their first job); (3) job changers (the focus of this paper). Only job changers have information collected about their previous employment and the wage changes resulting from job change. From the overall sample of newly hired workers from 1991 to 2002, totaling 1,012,899 workers, 517,384 are job changers. From this group, 446,100 job changers have relatively complete information. Table 1 provides sample means for the variables used in this analysis.

The survey collects categorical information in regards to wage change, age, firm size, educational attainment and cause of job separation. The wage change upon reemployment is categorized as a loss of 30% or greater (coded as -2), a loss of 10% to 30% (coded as -1), between a 10% loss and a 10% gain (coded as 0), a gain of 10% to 30% (coded as 1) and a gain of 30% or more (coded as 2). Age is provided in seven five year increments and includes those 19 and under and 65 and over to form nine categories in total. Present firm size is divided into
five categories (5-29, 30-99, 100-299, 300-999, 1000+). Previous firm size is divided into seven categories (public organization, 1-4, 5-29, 30-99, 100-299, 300-999, 1000+). Education is divided into four categories by graduation level (junior high, high school, junior college, university).

The cause of job separation is classified into one of eight categories: (1) job dissatisfaction; (2) bad human relations in the firm; (3) concern over the future of firm; (4) dissatisfaction over compensation; (5) dissatisfaction with working time and/or number of holidays; (6) marriage, maternity or family care; (7) mandatory retirement or dismissal; (8) other. We combine these categories into either voluntary or involuntary job separations. Categories 1–6 and 8 denote job separations initiated by the workers and are deemed “voluntary.” Mandatory retirement and dismissals are coded as “involuntary.” (These categories that define job separations our data do not match exactly with the reasons for job separation listed in table 2 that come from a different source and are not tabulated from our data.)

“Job displacement” in the US contact has been defined as involuntary job separation for reasons such as mass layoffs or plant closure and excluding firings for cause (Kletzer 1998). Those dismissed or subject mandatory retirement in their previous job, workers that we classify as involuntarily separated from their jobs, do not exactly fit this definition for displaced workers. In these data, the various reasons for dismissal can not be separated from one another. Reasons for dismissal include plant closings, layoffs and worker misconduct. We contend that, because Japanese labor law makes dismissals for misconduct difficult, the bulk of dismissals result from dire financial circumstances faced by the firm. While mandatory retirement is not a feature of the US labor market, these workers fit within the displaced worker definition as they found re-employment subsequent to mandatory retirement, and, hence, would presumably have remained in their prior job if allowed. In any case, those subject to mandatory retirement are not specifically coded as such and no easy way to exactly identify on the basis of workers age exists because the age of mandatory retirement varied both across industry and over time. Despite the legal invalidation of mandatory retirement prior to the age of sixty in 1994, the
decline in firms with a mandatory retirement age prior to sixty adjusted gradually from 20% in 1994 to 11.7% in 1997 and 0.8% in 2000. $ ^{5} $

## Summary Statistics

Table 1 provides means (which amount to frequencies) for the numerous binary variables available in these data. Of job changers in the sample, 40% are female, 14% are subject to involuntary job change, 52% changed industry, 34% changed occupation, and 17% are employed part-time both before and after job change. While 71% of job changers move to a firm in a different size category, 54% move to larger firms.

Table 2 provides reasons for job separations by year and gender. Trends toward more involuntary separations for both males and females are clearly evident. The primary source of involuntary job separation growth is management convenience which is akin to a layoff in the US. It is interesting to note that marriage and childbirth are decreasing in relative importance as a source of job separation for females. This makes sense in light of the falling rates of fertility and marriage in Japan.

A simple examination of the year by year wage changes in the data is provided in table 3. Table 3 displays a clear trend towards less favorable job separation outcomes for workers between 1991 and 2002. In the first panel, the reduction in workers with pay increases of 10% to 30% through job change is marked. Whereas 30% of workers had job change outcomes resulting in wage increases of 10% to 30% in 1991, this fell to 11% by 2002. Most of the decline in this category's share showed up as an increase among those with more neutral wages changes of between -10% to +10% and, to a lesser extent, as an increase among those with wage losses over 30%. Wage changes between -10% to +10% increased in share from 46% to 61% between 1991 and 2002. During the same period, those with wage losses over 30% increased in share from 5% to 11%. It is also evident in table 3 that increasing wage penalties coincided with the gradually rising unemployment rates.

To summarize the wage changes across the five categories in table 3, we followed Abe et al. (2002) and assigned values of -30%, -15%, 0%, 15% and 30% respectively to the five
categories to compute a rough mean wage change. While not exact as a mean wage change, it facilitates consideration of time trends, age relationships and comparisons across panels. It is clear that older workers face larger job change costs, but more so for males than for females. Similarly, restricting the sample to involuntary job separations shows that they increase the cost of job separation, especially for men. Temporary transfer to another company (shukko) has implications for wage changes that are similar to job changes from all sources in the full sample.

### 3. Factors Influencing Job Change Costs: Empirical Estimates

Since the dependent variable in this study, wage change, is an ordered, discrete variable, a technique that recognizes both of these characteristics is desired. Under these circumstances, an ordered logit model is appropriate. The estimated parameters values are such that a positive value indicates that an increase in the independent variable results in a more favorable wage change. Negative parameter values indicate that an increase in the independent variable has a negative effect on the wage change.

The results of the ordered logit estimations are presented in tables 4 and 5. The specifications estimate the effects of individual characteristics (age, gender and education level), whether the termination was involuntary, and job characteristics in both the present and previous job (part-time status, firm size, industry and occupation) on job displacement penalties. The estimations in table 4 are performed separately for each year in all but the last column that pools the data. Table 5 is estimated entirely on data pooled across the years 1991 to 2002. Table 5 focuses on key variables interacted with year dummy variables, the effect of movement to smaller or larger firm size categories and differences that result when the sample is divided by age, particularly in regards to gender. To allow time trends to be more clearly identified, the last column of table 5 uses year trend variables rather than individual year interaction variables.

The results in table 4 suggest that in any given year, older workers suffer larger job change penalties than younger workers. This owes to the negative sign on age squared. No clear sign pattern emerges with respect to gender in table 4 and parameter estimates are insignificant in most years. The influence of gender on job change penalties receives more attention in table 5. Workers with more education tend to have larger job change penalties relative to those with a junior high education. However, this pattern is not orderly as junior college graduates have larger penalties than college graduates and later in the sample period college graduates have outcomes.
not significantly different from junior high graduates. Better outcomes exist for those reemployed at larger firms. (“Present” in the tables indicates subsequent employment. “Previous” indicates original employment.) This is consistent with Rebick’s finding that pay is 14% (23%) higher for males (females) at firms with over 1000 employees in comparison to firms with 10-100 employees.

The part-time dummy is coded as a 1 when re-employment is part-time. Not surprisingly, those accepting part-time work have larger penalties, as do those involuntary separated from their previous employment.

In terms of subsequent employment, the results in table 4 suggest that workers finding jobs in the wholesale/retail/restaurant and service industries or administration and sales occupations tend to fare worse than workers going to other industries or occupations. In terms of previous employment, the results suggest that workers leaving the mining and finance/insurance/real estate industries or managerial occupation fare worse than other job changers. In terms of firm size, only leaving a large firm with employment over 1000 carries a larger penalty than leaving a public organization. The smaller the previous firm, the more favorable is the wage change upon reemployment. Workers leaving jobs that were previously part-time, do increasingly well later in the sample.

Table 5 pools all of the sample years and in the center two columns provide separate estimates for those workers less than 35 years of age and those 35 years of age and over. We confine our discussion of table 5 primarily to the time trends results in columns 14 and 17 and the key differences between columns 15 and 16 that divide the sample by age.

Considering columns 14 and 17 of table 5, we see that the age-related job change penalty is increasing over time during the sample period. After controlling for age and age-squared, the age-year interaction variables transition from positive in the early sample years to generally negative in later years in column 14 and the age-year trend interaction variable is significantly negative in column 17, depicting an increasing age-related job change penalty.

Gender exerts more influence on wages in Japan than in other developed countries [Tachibanaki 1998] and the median weekly earnings ratio of female to male earnings in Japan (.64) is substantially lower than the OECD average (.78) or in the US (.76) [Blau and Kahn, 2000, p.92, table 3]. Overall in these data, females in the pooled estimations in columns 14 and 17 have