An Adjustment Cost Model of Long-Term Employment in Japan

Shinichiro Nakamura

Journal of Applied Econometrics, 1993, vol. 8, issue 2, 175-94

Abstract: A dynamic factor demand model is presented which pays special attention to the prevalence of a long-term employment relationship in Japan. The model is based on the representation of technology by a variable cost function with adjustment costs for employment and capital stock, where the variable cost consists of the sum of overtime costs and materials costs. With employment being quasi-fixed and scheduled hours institutionally regulated, short-run adjustments are mostly made by overtime hours. Application to a time-series data on the Japanese electrical machinery industry indicates quasi-fixity of capital and employment and reproduces short-run overshooting of overtime hours to compensate for the sluggish adjustment of employment. Copyright 1993 by John Wiley & Sons, Ltd.

Date: 1993
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