The Path to Higher Growth : Does Revamping Japan’s Dual Labor Market Matter?

Author/Editor:

Chie Aoyagi ; Giovanni Ganelli

Publication Date:

October 1, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper argues that Japan’s excessive labor market duality can reduce Total Factor Productivity (TFP) due to a negative impact on non-regular workers’ effort and on firms’ incentives to train them. On the basis of cross-country empirical evidence, the paper proposes some reform options. In particular, our analysis suggests that reducing the difference in employment protection between regular and non-regular workers would substantially reduce labor market duality in Japan. One reform consistent with these findings is the introduction of a Single Open Ended Contract for all newly hired workers. This reform could be complemented by a shift towards a model that combines labor market flexibility and security (“flexicurity”) and by policies aimed at encouraging wage growth.

Series:

Working Paper No. 13/202

Subject(s):

English

Publication Date:

October 1, 2013

ISBN/ISSN:

9781484391303/1018-5941

Stock No:

WPIEA2013202

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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