Employment Market Institutions and Japanese Working Hours

Why do Japanese workers work such long hours? Beginning with a series of cases in the 1950s, Japanese courts drastically curtailed firms’ abilities to dismiss workers. As a consequence of the inability to dismiss workers legally, large Japanese firms hired a smaller number of workers than were necessary to fulfill capacity without overtime. Employers rely on the working hours of this undersized cadre of workers, carefully screened to rule out the slothful, as a buffer. In bad times, the size of the work force makes dismissal unnecessary. In good times, workers are forced to work long hours. While these court decisions led to an increase in working hours in the 1950s, recent laws have led to a decrease. In response to interest group demands of the late 1980s and 1990s, Japan passed legislation that directly limits working hours. At the same time, it liberalized rules regarding temporary employees, allowing those persons to serve as the buffer instead of regular employees. As the statutory working-hour limits and market liberalization have taken effect, working hours have decreased