The Reform of Labor Market Institutions from the Perspectives of Law and Economics

Author Name HIGUCHI Yoshio  (Keio University)
Creation Date/NO. October 2008 08-J-056
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In this paper I address the problem of the bipolarization of the labor market from the perspectives of law and economics, surveying the actual situation and examining business-cycle factors and structural factors that have given rise to it. I then consider desirable forms of employment policy and the legal system that would be required for effective labor market reform. Since the 1980s the growth in the number of part-time workers in Japan has led to an increase in irregular employment, and the financial crisis of 1997 triggered an increase in the number of workers working on the basis of fixed-term contracts in the sphere of irregular employment, while the number of regular employees has declined amid a remarkable extension of working hours. Against this backdrop there was a lack of labor demand in the Japanese economy as a result of the long recession, and there were changes in corporate governance that impelled firms to cut personnel expenses and avoid fixed costs, while the advance of economic globalization and technical innovation also increased disparities with regard to the productivity of individual workers.

To bring about a quantitative increase in employment and also raise quality, it is essential for the government to provide employment support to workers left behind by the changes in the economic environment, to provide assistance with developing their skills, and at the same time to create employment opportunities for them. It is also important to promote rules for worker protection and equality of treatment that strike a balance between part-time and regular workers, between fixed-term employment and employment for indefinite periods, and to enhance the safety net for irregular employees. In addition, to enhance the effectiveness of policies and laws it would be desirable to have not only the conventional structure with its penal regulations and assistance, but also for the government to create a new structure under which firms set out their goals publicly, conduct labor-management discussions oriented towards achieving them, reform employee attitudes, put compatible market infrastructure in place, and improve methods of working.