The Consequences of Short-Time Compensation: Evidence from Japan

Author Name KATO Takao (Colgate University) / KODAMA Naomi (Research Associate, RIETI)
Creation Date/NO. July 2019 19-E-056
Research Project Research on Productivity-improving Capital Investment
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We apply the Propensity Score Matching (PSM) with difference-in-differences methodology to unique data on STC from Japan, a country known for its extensive use of STC, and find the first rigorous evidence on the positive consequence of STC for firm performance measured by ROA and profit margin. Consistent with the observed positive consequences of STC for firm profitability, we further find that STC leads to sales growth without raising labor costs. We then assess the validity of four possible explanations for the positive consequence of STC on firm performance. Compared to the conventional explanations (preserving firm-specific human capital and avoiding the negative morale effect of layoffs), our additional evidence lends more credence to a behavioral explanation--worksharing which STC promotes can introduce what the psychological literature calls "shared adversity" which facilitates supportive interactions among workers in the firm and strengthens commitment of workers to the firm, and thereby enhances goal alignment between workers and the firm as well as between coworkers, resulting in enhanced firm performance.