Changes in the Japanese Employment System in the Two Lost Decades

This paper re-examines developments in two key elements of the Japanese employment system, seniority-based wages and lifetime employment, using recent microdata from the Basic Survey on Wage Structure. In contrast with previous studies, we do find evidence that these practices are eroding. For seniority wages, we find, for example, that the age-wage profile has become flatter in recent years, especially for employees in the middle and final phase of their career. And for lifetime employment, we find a clear downward trend in the share of lifetime employees among younger, university-educated workers from the early 2000s. The findings suggest that a growing share of educated younger workers choose to leave indefinite-contract jobs due to the poor prospects for seniority-based wage progression, while older workers choose to stay in their present job despite stagnating wages, since it is more difficult for them to find alternative employment.