NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bonuses and Employment in Japan

Richard B. Freeman, Martin L. Weitzman

NBER Working Paper No. 1878 (Also Reprint No. r1106)
Issued in April 1986
NBER Program(s):   LS

Japan has a relatively unique system of labor compensation. Most Japanese workers are paid large bonuses twice a year. This paper examines the cyclical movement of bonuses compared with wages and the relation of bonuses to employment in the context of the Weitzman "share economy." The paper makes three basic points:(1) The Japanese bonus is much more pro-cyclical than Japanese base wages,but not as cyclically variable as profits. Bonuses can be interpreted as containing a quantitatively significant revenue or profit-sharing component.(2) Bonuses have quite different employment consequences than do base wages. Even after controlling for other economic factors, bonuses are positively related to employment, whereas base wages are negatively related to employment.(3) The bonus system of paying workers, while far from explaining the whole macroeconomic story in Japan, seems to play a role in helping to stabilize Japanese unemployment at comparatively low levels.

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Document Object Identifier (DOI): 10.3386/w1878

Published: Journal of the Japanese and International Economies, Vol. 1, pp. 168-194,(1987). citation courtesy of

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