Uncertainty over Labor Contract Duration: Evidence from Japanese Micro Data

Assuming that the usual distinction between regular and non-regular employees comes short to explain recent developments in the Japanese labor market, we argue that contract duration – the distinction between permanent and fixed-term employment – is probably a more accurate method to analyze current developments. The Labor Standards Act is unambiguous in this regard, requiring the employer to provide a labor contract with a clear defined duration and information whether the contract can be renewed in case of a fixed-term contract. However, applying data from the Employment Status Survey reveal that 8 percent of the employees do not know the duration of the labor contract. In the first step, we identified characteristics of the socioeconomic status of these employees. We found that the characteristics of the employees who “do not know” (DNK) their contract length is u-shaped in age and tenure, but decreasing in job rank, firm size, income and working hours. Based on the results, we derived two hypotheses; the first refers to human capital attributes and argues that DNK is due to employees’ weak cognitive capability. The second hypothesis indicates a “bad job” framework arguing that DNK is related to low job rank, low income, unfavorable working hours and less access to company training. Using linear regression and probit models we found support for both hypotheses.