Effect of the White Collar Exemption in the Japanese Labor Market

In Japan, managers with the title of section chief and higher are exempt from an overtime regulation that requires employers to pay an overtime premium of 25 percent to hours worked above statutory work hours. Recently, there has been a series of discussions whether or not the range of the exemption currently allowed only to managers shall be broaden to include other employees. We discuss the possible effect of the broader adoption of the overtime regulation exemption, based on the empirical research that investigates the working hours and hourly wages for currently exempt employees and non-exempt employees. We conclude that the possible effect of broadening exempt employees would not be very large, that is, even extending the range of the white-collar exemption, working hours on average would not become considerably longer nor hourly wages lower. We regard that working hours and hourly wages are not determined by the overtime regulations but by the implicit contract (fixed job model) or incentive mechanism through promotion (tournament model).