Volatility of Firm Performance and Atypical Employment: An empirical analysis using firm-level data

Author Name MORIKAWA Masayuki  (Vice President, RIETI)
Creation Date/NO. March 2010 10-J-023
Research Project Empirical Analysis of Japan's Labor Market: Policy Responses to Fertility Decline and Population Aging
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This paper empirically analyzes the relationship between the instability of firm performance and the use of atypical employees, such as part-time and temporary workers, by using the panel data of more than 8,000 firms from 1994 to 2006. Globalization and innovation are highlighted as the forces that increase the volatility of firm performance, which in turn increases the demand for flexible labor forces. According to the job flow analysis, jobs of temporary and contract workers are more unstable compared with part-time jobs. The results suggest that temporary workers are not necessarily substitutes for regular fulltime jobs, but rather that temporary workers are the substitutes for part-time, casual or contract jobs. After controlling for various firm characteristics, the volatility of a firm’s sales growth is a significant determinant of the ratio of atypical employees. This relationship is stronger for manufacturing firms. Among the highly volatile firms, the ratio of atypical employees has a strong positive relationship with productivity. These results suggest that the desirable policy-mix for the economy is the combination of 1) the provision of a sufficient safety-net and training opportunities for atypical workers, and 2) enabling firms to adjust labor input flexibly.