Restructuring Japan's Employment System: Overview

Author Name TSURU Kotaro (Faculty Fellow, RIETI)
Creation Date/NO. May 2019 19-P-008
Research Project Reform of Labor Market Institutions
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In this paper, we begin with the overview of three stylized features of Japan's postwar employment system; long-term employment, deferred compensation, which is reflected in Japan's steeper age-wage profile; and relatively late-stage promotions Then, we emphasize a key attribute of regular employment in Japan—its "indefinite" or "unrestricted" nature--as a source of many labor and employment issues. To tackle them, we propose a big ban approach to change the current regular employment system to a more job-specific or restricted one. We also discuss how the on-going work style reform can improve firm performance and productivity. We also focus on the "entrance" (hiring new graduates) and "exit" (mandatory retirement, elderly employment and employment protection, especially severance payment) of the system and provide necessary policy recommendations. Finally, we explore the future of the system, examining the changes to our business practices, employment and skills under the development of new technologies like AI.