Causal Mechanisms of the Decline in Long-term Employment in Japan: Evidence from Long-run Panel Data

Using the long-run panel data from the Japanese Longitudinal Survey on Employment and Fertility (LOSEF), this paper examines the mechanisms behind the decline in life-time employment in Japan. Focusing on the complementarity of life-time employment and seniority-based wages (i.e., an upward-sloping age-wage profile), the two key features of the traditional Japanese employment system, we find that the flattening of wage profiles is likely to lead to a decline in life-time employment. This finding holds even for male college graduates employed in large firms, i.e., for those who are often regarded as the core segment to which the Japanese employment system applies. The results suggest that life-time employment may weaken further if wage profiles continue to flatten in the future.