The Japanese Public Policies on Tax, Wages, and Standard Work Hours - Evidence from Micro Data.

Abstract

This dissertation theoretically and empirically examines several topics relating to the Japanese labor market. Chapter II explores how the 2004 tax reform in Japan affected the income distribution of married women. Quantile difference-in-difference estimations and FFL and DFL decompositions indicate that i) the tax reform contributed to increasing work hours (and hence the incomes) of low-income married women, and ii) the kink at 1.03 million yen in the budget line, which was made more conspicuous by the tax reform, dragged even medium- to high-income married women, who were not presumed to be affected by the tax reform, toward the center of the income distribution in response to an increase in their husbands' incomes. Consequently, the conventional distortion at 1.03 million yen in the income distribution became stronger after the reform. Chapter III provides a theoretical and empirical analysis of the effect of performance-based layoffs on wage rigidity in the context of performance pay. In the model, it becomes optimal for firms to raise the future regular pay so as to maintain the workers' current efforts, which results in the downwardly rigid regular pay of experienced employees under the threat of performance-based layoffs. Together with the finding that layoffs are more likely to occur during recessions, this result has an implication on the downward rigidity of regular pay during recessions. Furthermore, it becomes optimal for firms to base wages less on workers' performance during recessions due to the lower value of productivity. Thus, bonuses move proportionally to the output price. The results from Japanese panel data set supported these theoretical implications. Chapter IV assesses the impact of Japan's reduction of weekly standard work hours on labor-market outcomes using the regression discontinuity approach: Although the reduction of standard hours reduced total hours worked, the monthly wages of existing workers did not decrease in response to the policy change. As a result, overall labor costs per hour increased, and we do not see any evidence of job creation. Even in Japan, where wages are determined flexibly, we observe evidence similar to that in European countries, where pay is largely determined through union-employer bargaining.