Has Japan’s work style reform had the intended effect?

Abstract

ABSTRACT Since 2016, the Japanese government has promoted the reform of work styles to reduce working hours, facilitate flexible working arrangements, and ensure the fair treatment of nonregular workers while improving productivity. Policies such as flexible work styles that leave the time and place of work to the worker’s autonomy and efforts to enhance work efficiency through the use of IT have rapidly penetrated both large companies and medium-sized companies since 2016. We use an original retrospective survey of 847 Japanese firms combined with financial data from 2009 to 2019 to examine how Japan’s work style reforms have affected overtime hours, turnover rates, sales per person, and corporate profits. By estimating fixed effect models, we find that (1) the policies for business prioritization to improve efficiency by outsourcing noncore businesses and taking on more selective orders have had positive effects on sales per employee and profits, (2) flexible work styles have reduced overtime and raised profits, and (3) the effects are heterogeneous: flexible work styles have reduced overtime hours, increased ROA and sales per employee in the service sector, and had significantly negative effects on sales per capita in the nonservice sector. Potential estimation biases are also examined in additional analyses.