Long-Term Employment and Job Security Over the Last Twenty-Five Years: A Comparative Study of Japan and the U.S

Abstract

Taking advantage of a recent change in the microdata release policy of Japanese government, we conduct a cross-national analysis of micro data from Japan’s Employment Status Survey (including the most recent 2007 data) and America’s Current Population Survey, comparable labor force surveys from the two largest advanced economies. Our main focus is changes in long-term employment and job security over the last twenty five years, in particular during Japan’s “Lost Decade” which corresponded to America’s longest economic expansion in history. We find that in spite of the prolonged economic stagnation, the ten-year job retention rates of core employees (employees of prime age of 30-44 who have already accumulated at least five years of tenure) in Japan were remarkably stable at around 70 percent over the last twenty-five years, and there is little evidence that Japan’s “Lost Decade’ had a deleterious effect on job stability of such core employees. In contrast, in spite of the longest economic expansion, the comparable job retention rates for core employees actually fell in the U.S. from over 50 percent to below 40 percent. The probit estimates of job losses equations in the two nations also point to the extraordinary resilience of job security of such core employees in Japan, whereas showing a significant loss of job security of such core employees in the U.S. Though core employees in Japan are found to have weathered the “Lost Decade” rather well, we did find for Japan that midcareer hires as opposed to new graduate hires (“home-grown” employees who are hired immediately upon graduation from schools and climbing up internal promotion ladders) and young new entrants experienced deteriorating job stability and declining job security during the “Lost Decade”. Overall, however, it was the U.S. with the longest economic expansion not Japan with the long stagnation where long-term employment declined and job security was lost (especially for core employees). Our finding sheds new light on the contrasting response of the two largest advanced economies to a great recession. U.S. unemployment rate rose to near 10 percent within a year after the burst of the bubble in 2008, whereas Japanese unemployment rate never reached 6 percent during her “Lost Decade”.