Long-Term Employment Contracts in Japanese Companies and the Corporate Profitability in the Post Economic Bubble Era

Abstract

The long-term employment contracts that helped to explain the once superior performance Japanese companies have come under pressure after the burst of the economic bubble in Japan after 1990. A large number of long-tenured, highly paid employees can become a financial burden for a company. Though companies have been reluctant to change this traditional structure, an adverse economic environment made it difficult for the system to fulfill its functional prerequisites. This analysis of 156 electronics companies in Japan confirms that the presence of long-term employment system during an economic slowdown can have a negative effect on corporate profitability.

Keywords: Long-Term Employment, Seniority-Based Promotion, Corporate Profitability, Japan

JEL Classification: J31, J33, J41, J64, N35