The Effect of Labor Regulation on Technology Use and Productivity of Japanese Companies

This paper analyzes the quantitative effect of the labor regulation change in 2012 on labor demand, technological use, and productivity of Japanese companies. Recently, new technologies, such as IT and AI, are changing the labor needs of the companies. Based on the situation, changes in labor regulation can encourage change in labor demand and the structure of labor. Some previous studies show that changes in labor regulation affect labor demand and technology use within firms. However, there is little research focused on Japanese companies. Our results show that stronger labor regulation targeting non-regular employees decreases the demand for non-regular employees and the stock of intangible fixed assets. Also, our results imply that increases in the assets encourage advances in productivity. These results can contribute to the policy discussions related to technological diffusion and changes in employment in Japan.