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

Author/Editor: Chie Aoyagi | Giovanni Ganelli
Authorized for Distribution: October 1, 2013
Electronic Access: Free Full Text (PDF file size is 718KB)
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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.
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Series: Working Paper No. 13/202
Subject(s): Labor markets | Japan | Employment policy | Economic growth | Labor productivity | Labor market reforms
    Published:   October 1, 2013        
    ISBN/ISSN:   9781484391303/1018-5941   Format:   Paper
    Stock No:   WPIEA2013202   Pages:   26
    Price:   US$18.00
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