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Employment and Wage Adjustments at Firms under Distress in Japan: An Analysis Based upon a Survey

Kenn Ariga and Ryo Kambayashi
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Kenn Ariga: Institute of Economic Research, Kyoto University
Ryo Kambayashi: Institute of Economic Research, Hitotsubashi University

No 668, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We use the result from a survey of Japanese firms in manufacturing and service to investigate the choice of wage and employment adjustments when they needed to reduce substantially the total labor cost. Our regression analysis indicates that the large size reduction favors the layoffs of the core employees, whereas the base wage cuts are more likely if the firms do not feel immediate pressures from the external labor market or the strong competition in the product market. We also find some evidence that the concerns over adverse selection or demoralizing effects of wage cuts are real. Firms do try to avoid using base wage cuts if they consider these factors more important.

Date: 2009-01
New Economics Papers: this item is included in nep-bec and nep-lab
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