Labor Adjustment, Productivity and Output Volatility: An Evaluation of Japan's Employment Adjustment Subsidy: Working Paper 2005-10

Naomi Griffin

No 17567, Working Papers from Congressional Budget Office

Abstract: This paper provides a theoretical examination of the impact of Japan’s Employment Adjustment Subsidy, a major employment insurance policy since 1975, on labor adjustment, productivity and output fluctuations in the iron and steel sector. A partial equilibrium industry model with heterogeneous establishments and aggregate uncertainty shows that the EAS reduces steady-state labor productivity by encouraging labor hoarding, while reducing job flows and increasing average firm-level employment. While the directly measured impact on productivity is proportional to the fraction

Date: 2005-12-02
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