Japanese Labor Market Reform. Why Is It So Difficult?

Socially embedded features in Japanese markets and how market activities in Japan deviate from the West have attracted considerable attention from a wide range of scholars in the social sciences. But the period of economic stagnation following the burst of the bubble economy in 1990 has brought about a deluge of criticism and reform pressures focusing on restructuring, sometimes taken to be synonymous with the dismantling of the very same institutions that were once viewed as the pillars of Japan’s postwar economic expansion. Amidst the economic downturn, the benefits of social exchange in Japan are overshadowed by its costs, and there is mounting pressure that transactions must become more market driven. This paper examines how embedded features in the Japanese labor market impede the efficient mobility and allocation of workers. The gains from economic exchange may be many, and numerous economists and policy makers have proposed measures that facilitate the dismissal of workers to set the stage for a more fluid labor market. But a market that matured under the tradition of long-term employment governed by the norms of social exchange has yet to develop an infrastructure for job-seekers, and there remain numerous barriers that prevent the mobility of workers across different organizations.