Silviase/jgov_v1.4_full_ann huggingface dataset:
# Declining Long-term Employment in Japan $ ^{1} $

Daiji Kawaguchi

Hitotsubashi University, RIETI, TCER, and IZA

Yuko Ueno

Ministry of Foreign Affairs, The Government of Japan

## Abstract

This paper documents the secular decline of years of job tenure in Japan based on micro data from two representative government surveys, namely the household-based Employment Status Survey (ESS) and the establishment-based Basic Survey of Wage Structure (BSWS). Workers born in 1970 have experienced about 20 percent fewer years of job tenure than those born in 1945, based on an analysis of ESS data. The decline of the long-term employment relationship is uniformly observed across firm sizes and industries. Among job changers, the fraction of voluntary job changes, as well as that of job changes associated with wage increase, has been stable.

Key Words: Economic stagnation, Human capital, Implicit contract, Long-term employment

JEL Classification: J21 (Labor Force and Employment, Size, and Structure), J62 (Job, Occupational, and Intergenerational Mobility)
### 1. Introduction

Media frequently report on the downsizing of well-known companies, outsourcing of jobs to developing countries, and increases in the number of workers under flexible contractual arrangements. These reports create an impression that long-term career jobs are shrinking. In contrast to the pile of anecdotal evidence for the disappearance of long-term jobs, researchers have not reached a consensus about the long-term trends of the length of job tenure in several developed countries. They reach somewhat different conclusions because they rely on different concepts and measurements of job attachment, as well as different data sets (See Neumark (2000) for the US study).

The time trend of long-term employment in Japan also has attracted much attention, as long-term employment had once been regarded as the main feature of the Japanese labor market (Hashimoto and Raisian (1985), Mincer and Higuchi (1988)). $ ^{2} $ Recent studies ask whether this practice has survived through the two-decade-long stagnation. One strand of research reports the decline of the long-term relationship based on a declining retention rate (Kambayashi and Kato (2008)) or a flattening tenure-wage profile (Hamaaki et al. (2010)), while another strand of studies reports the survival of long-term employment regardless of the long-term stagnation of the Japanese economy (Chuma (1998), Faber (2007), Shimizutani and Yokoyama (2009)). In fact Ono (2010) admits that the conclusion depends on a change of measurement and data sets.

Given this state of literature, this paper documents the secular change of long-term employment based on micro data of a household survey, the Employment Status Survey (ESS), and a firm survey, the Basic Survey of Wage Structure (BSWS). This paper employs the method used by Farber (2007), which analyzes US data to compare the secular change of job stability of Japan with that of the US. Our analysis, based on a household survey, the ESS, and a firm survey, the BSWS, draws different pictures of the secular trends of job stability in Japan.

The analysis based on the ESS implies a secular decline of average years of job tenure among workers born after 1944. Male workers who were born in 1970 have 20 percent fewer years of job tenure than workers who were born in 1944, and this decline is quantitatively similar to the corresponding US figure reported by Farber (2007) based on the Current Population Survey. In contrast, the analysis based on the BSWS implies that the average years of job tenure among male workers does not change significantly, except for the workers who are born after the mid 1970s, who presumably entered the labor market after the Japanese long-term stagnation. An analysis of females based on the ESS indicates the average years of job tenure compared with the 1945-born cohort.
had declined after the birth cohort of the 1960s. For more recent birth cohorts, the average job tenure increased until the birth cohort of 1972, and then declined afterward. In sum, the analysis based on the ESS indicates a gradual decline of job stability among male workers born after 1944 and female workers born after 1960. In contrast, the analysis based on the BSWS implies a relative constancy of job stability among male workers and an increase followed by a decrease of such constancy among female workers.

We find that the discrepancy of the results based on the ESS and the BSWS is attributable to the different sampling schemes of the two surveys. The ESS is a household survey that is comparable to the Current Population Survey in the US, whereas the BSWS is an establishment survey that records individual workers' years of job tenure based on establishments' payroll records. A comparison of the ESS and the BSWS reveals that the sampling of BSWS establishments is biased toward larger-scale firms and the industry composition is different. An adjustment of the difference of the sampling probability of an establishment by firm sizes and industries is found to contribute to reducing the discrepancy, but it fills only part of the gap. The BSWS's sampling procedure tends to include establishments with longer business histories, and the establishments' payroll records are more likely to include workers with traditional employment contracts. In sum, as Farber (2007) suggested, Japanese workers enjoy greater job stability than their US counterparts, but both workers have experienced a quantitatively similar decline of job stability as long as the analyses are based on comparable household surveys and a consistent method.

We further find that male workers in all age groups, industries, and firm sizes almost uniformly have experienced declining long-term employment. This finding casts doubt on claims that declining long-term employment is concentrated among youth, that it is caused by industries' compositional change, or that larger firms stick to their long-term employment practices. We do not find any evidence that recent job changers are happy job hoppers. The fraction of voluntary job changers or that of job changers experiencing a wage increase has been almost stable for the last 40 years. After all, a falling tide sinks all boats.

The rest of the paper is organized as follows. Section 2 introduces the two data sets, the ESS and the BSWS, in detail. Section 3 reports the change in the average years of job tenure by birth cohort based on the ESS and the BSWS. Section 4 discusses the discrepancy of the results based on the two surveys and attempts to fill the gap of analysis based on both surveys, using a reweighting procedure. Section 5 further investigates the change of long-term employment by industries and firm sizes. Section 6
examines if the decline of long-term employment is associated with an increase of positive job-hopping behavior among Japanese workers. Section 7 summarizes the findings of the analysis and derives its implications.

### 2. Two Data Sets on Job Tenure

Two datasets are exploited in this study to examine the change in job-tenure distributions in last two decades.

The first data set used in this study is micro data from the Employment Status Survey (ESS, Shugyo Kozo Kihon Chosa) for the years 1982, 1987, 1992, 1997, 2002, and 2007. The ESS is conducted every 5 years on household members ages 15 or older in approximately 440,000 households dwelling in sampled units that cover the complete population. $ ^{3} $ The survey collects information on household members and each member's labor-force status on October 1 of each survey year. This study utilizes micro data and extracts information on age, educational attainment, employment status, and the years of tenure with current employer. $ ^{4} $ If the workers are doing more than one job, they are requested to provide information with regards to their major job. The file contains about 1 million individuals with a half-million males and a half-million females for each year that the survey was conducted. Our analysis sample includes only employed workers, which excludes self-employed and family workers. The sample is further restricted to observations with a valid age, educational background, and employment status. Those without job tenure conditioned on being employed are dropped.

The second data set used in this study is micro data from the Basic Survey on Wage Structure (BSWS, Chingin Kozo Kihon Chosa), compiled annually by the Japanese government between 1989 and 2008. This survey is conducted in June of every year and contains observations randomly chosen from almost all regions and industries in Japan except for agriculture. The annual number of observations is approximately 1.5 million workers from 60-70 thousand establishments. The sample includes all establishments with 10 or more employees in both private and public sectors and all establishments that belong to private firms with 5 to 9 employees. The establishments in the sample are randomly chosen in proportion to the size of prefectures, industries, and number of employees from the Establishment and Enterprise Census (EEC), which lists all
establishments in Japan. $ ^{5} $ In addition to filling out an establishment survey, the selected establishments are asked to randomly extract their workers' information from their payroll records at the individual worker level. $ ^{6} $ The establishment and individual files were merged using an establishment identification number. The unit of analysis is an individual worker with relevant information from the establishment to which he/she belongs. Among the variables related to workers' characteristics, job tenure with the current firm in June is available. Specifically, the survey instrument asks a respondent from an establishment to fill in the years of tenure at the firm to which the establishment belongs for each randomly selected worker, based on the establishment's payroll records. Other variables include age, sex, educational attainment, full-time/part-time status, employment status (with or without permanent status), as well as the firm's attributes, including the number of permanent workers (Joyo Rodo Sha), $ ^{7} $ firm size, industry, and location.

Data on how long workers have been with their current employer are available both in the ESS as of 1 October of 1982, 1987, 1992, 1997, 2002 and 2007, and the BSWS between 1989 and 2008 for every June. The analysis sample is restricted to those who are ages 25-54, have already graduated from school, are currently employed, and are called regular workers, temporary workers, daily workers, or executive officials. We also limit the analysis to workers who were born between 1944 and 1981, to exclude from the sample those who had already reached the usual retirement age (i.e., 55 years old in the early 1980s) at the point of the BSWS’s earliest survey (1989), and also to exclude those who had not yet reached age 25 at the point of the ESS’s latest survey (2007). As a result, our analysis sample includes workers born in the five decades from
the 1940s to the 1980s. $ ^{8} $

Table 1 contains summary statistics on age, tenure, and the fraction of permanent-regular worker by decade of birth and by sex. The sample is limited to workers between the ages of 25 and 54. Earlier birth cohorts have predominantly older workers and more recent cohorts have predominantly younger workers. Thus, the mean tenure is naturally shorter for younger cohorts, implying the importance of the right censoring of the years of tenure. No single birth cohort covers the entire age spectrum. By comparing tables for males and females, both the mean and standard deviation of ages for each cohort is quite similar for men and women. Although it is not possible to completely characterize an age distribution from this information, there are not any significant differences between men and women for all cohorts at least with regards to the mean and standard deviation among the samples of the employed. The fraction of permanent regular workers is lower for female workers than for male workers. Note that the fraction of permanent regular workers tends to decrease among recent cohorts of male workers, while this is not the case for female workers.

One factor that might affect the distribution of tenure among age cohorts is education years. Through the periods of the surveys, the average education years increased to a certain extent for both men and women. This would directly lead to a shift of the tenure distribution to the left-hand side, as the timing for workers to participate in the labor force would be delayed accordingly. This tendency is expected to have a significant impact on the shape of the entire tenure distribution, as most people used to find a permanent job upon graduation in Japan.

Table 2 summarizes the proportion of workers by years of education, by sex and age cohort. As we expected, the figures for 9-11 years of education decreased somewhat among more recent age cohorts of both male and female employees. The share of employees with 12 education years (i.e., high-school graduates) is the greatest, but those of employees with even more years of education (for example, university graduates) also increased among more recent cohorts for both sexes. The drastic changes started around the 1950 birth cohort. In particular, among women, the majority of high-school graduates started to be substituted by junior-college graduates (13-15 years of education) from around 1960 birth cohort. In the analysis of changes in employee tenure by age cohort in a later section, we will take into account the impacts of greater years of education.

Although both datasets are designed to be surveys based on random sampling, attention might be required to compare the results from each of them, as samples are
collected using quite different processes. In addition, as explained earlier, the coverage of data is not exactly the same; small-size establishments (i.e. those with 1-4 workers) are not covered in the BSWS, while workers at such establishments are included in ESS samples. Focusing on industry and firm-size distribution, Table 3 compares the distribution of the samples by industry and by firm-size of employers between the ESS and the BSWS. We can see differences in these samples; for example, the share of finance sectors is greater in the BSWS than the ESS, while that of the construction sector is much smaller. Not only the industry distribution, but also the average tenure is not necessarily consistent between two datasets. The same holds for the firm-size distribution; for example, the share of the workers working at firms with more than 1000 employees tends to be greater in the BSWS than in the ESS.

To grasp a rough sense of the data, Figure 1 reports age-specific mean tenure based on ESS and BWS data of the most recent survey years between 2005 and 2008. For the purpose of a cross-sectional comparison with the US, age-specific mean tenure calculated from the Current Population Survey January Supplements 2004, 2006, and 2008 is superposed. Japanese workers apparently enjoy about 50 percent longer job tenure than US workers for all age ranges.

## 3 Average Years of Job Tenure by Birth Cohorts

### 3.1 Basic Results

Our goal is to estimate the change of mean job tenure by birth cohorts, conditional on workers' age, exploiting the structure of repeated cross-section data. Older workers have more years of job tenure, on average, and thus, workers of earlier birth-years cohort have more years of job tenure, on average. To examine the change of tenure length by birth-year cohort conditional on age, Figure 2 plots age-specific average years of job tenure from the ESS (Panel A) and the BSWS (Panel B). Average years of tenure become fewer for more recent cohorts among male workers based on both data sets, while the change is more distinct in the ESS sample. The changes of age-specific tenure years across cohorts are more complex for female workers, and the patterns of change are not consistent between the ESS and the BSWS.

As a simple way to summarize the average change of age-specific tenure across cohorts, by referring to the linear estimation model proposed by Farber (2007), we estimate the following linear model of the natural logarithm of tenure to examine the change of average job tenure by birth cohort, conditional on workers' age:

$$ \ln(T_{i j k})=C_{j}\alpha+A_{k}\beta+\varepsilon_{i j k}\;, $$
where $ T_{ijk} $ is tenure years for employee i in birth cohort j aged k, $ C_{j} $ is a vector of dummy variables corresponding to each birth year, $ \alpha $ is a vector of associated coefficients, $ A_{k} $ is a vector of dummy variables corresponding to each age, and $ \beta $ is

a vector of associated coefficients. Year dummy variables are not included to attain the identification. The logarithmic specification embodies the same implicit assumption that proportional cohort effects on mean tenure are constant across ages and, equivalently, that the proportional age effects on mean tenure are constant across birth cohorts, as in Farber (2007). When these assumptions are violated, the cohort effects averaged over the age distribution and the age effects averaged over the cohort distribution are estimated. In our estimation, we set the birth cohort as long as one year, as we observe several year-specific factors that might affect the mean tenure among employees, and the sample size is large enough to estimate the individual birth-cohort effect with precision.

We estimate the model in equation (1) separately for men and women using OLS. The estimated cohort effects on mean tenure, normalized at zero for the 1944 birth cohort, are converted to percentage differences in mean tenure relative to the 1944 birth cohort as $ 100 \times \left[\exp\left(\widehat{\alpha}_{j} - \widehat{\alpha_{1944}}\right) - 1\right] $ . These percentage differences derived from the estimation with the ESS and the BSWS are plotted in Figure 3 Panels A and B, and they show a general trend of decline for males and females. The patterns of decline are slightly different between male and female workers. Among male workers, from the birth cohorts 1945 to 1981, age-specific mean tenure gradually decreased as a general trend (approximately 35% based on the ESS and 30% based on the BSWS). Among female workers, the age-specific mean tenure stays at almost the same level between the 1945 and 1960 birth cohorts based on the ESS and the 1970 birth cohorts based on the BSWS, and a declining trend is quite obvious afterward. The decreasing rate is almost the same as the male ones between similar birth cohorts; it decreased by about 30% between the 1945 and 1981 birth cohorts.

There are a couple of general interpretations of the above results.

First, similar to the US case discussed in Farber (2007), birth cohorts after 1945 of female workers could have increased their commitment to the labor force with lower rates of withdrawal from the labor force in child-bearing years, but such trends are not particularly obvious from the estimation result. Rather, the estimation result indicates a general decline in long-term employment for birth cohorts after 1960, though this trend might have been offset by the other impacts, such as a further increase in female
commitment to the labor force.

In addition to the increased presence of women in the labor force, there are other important changes that could be related to the decline in mean tenure, similar to the US case. For example, as discussed in previous section, we can point to the impact from the increase in average educational attainment after the WWII period (see Table 2).

Second, we can also observe a general decline in the mean tenure years among male workers for birth cohorts after 1945. These results are not necessarily consistent with the conclusions of previous studies. As discussed, Shimizutani and Yokoyama (2009) concluded that the long-term employment system remains stable with some exceptions observed among a certain worker group.

Third, the differences of the results based on the ESS and the BSWS are notable. For both male and female workers, the estimated percent change is greater in its absolute value for all birth cohorts in the ESS than in the BSWS. The difference between the two results ranges around 2-10% across birth cohorts. We argue that these differences are caused mainly by the difference in the coverage of the two data sources. As discussed in the previous section, we regard the ESS as covering the tenure of the wider labor force. For example, (i) only the ESS covers those who work at a small establishment with 1-4 regular employees, and (ii) the BSWS might not cover new establishments that are not included in EEC, which is updated every two to five years. In addition, (iii) while the ESS registers the tenure of dispatched or contract workers as that of nonpermanent workers at the current workplace, it can be either insufficiently captured or recognized as that of permanent workers or nonpermanent workers at temporary agencies in the BSWS. As a whole, we consider that the ESS provides a more precise picture of the current developments in the tenure of Japanese workers because of its wider and more accurate coverage than the BSWS.

It would be beneficial for us to further examine the behavior of tenure years, as the analysis above treats various workers without controlling the factors that might have affected workers' tenure. In particular, we focus on two factors: (i) education and (ii) contract type (permanent/non-permanent)

### 3.2 Controlling for Years of Education

To assess whether changes in the educational composition of the labor force can account for the decline in mean tenure, we estimated an augmented version of the regression model for the mean tenure in equation (1), as follows

$$ \mathrm{ln}\big(\mathrm{T_{ijk}}\big)=\mathrm{ED_{i}}\gamma+\mathrm{C_{j}}\alpha+\mathrm{A_{k}}\beta+\varepsilon_{\mathrm{ijk}},\ (2) $$