Social Security Contributions and Employment Structure: A microeconometric analysis focused on firm characteristics

Author Name KOBAYASHI Yohei  (Consulting Fellow, RIETI) /KUME Koichi  (Recruit Works Institute) /OIKAWA Keita  (University of California, Davis) /SONE Tetsuro  (Ministry of Economy, Trade, and Industry)
Creation Date/NO. August 2013 13-E-067
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Against the background of the country's aging population, this paper empirically estimates the effect of the social security burden on the employment level and structure in Japan, using firm-level microdata matched with social security insurance data. In particular, we use dynamic panel data methods to estimate labor demand functions and thereby evaluate the degree to which social security contributions influence corporate labor demand. We specifically examine the impact of firm characteristics such as the presence of labor unions and the intensity of competition in the product market. Our empirical results indicate that social security contributions do not have a statistically significant impact on employment. However, companies that face harsh competition in their product and labor markets tend to substitute non-regular workers for regular ones in response to an increase in social security contribution rates.