The Establishment of the Deficit Adjustment Pattern in Japan

Abstract

Employing the panel data on Japanese unlisted firms, this paper examines when the labor adjustment pattern the deficit adjustment model describes was established in Japan.

We find that the speed of labor adjustment was accelerated in the red though the overall speed was slowed down in unionized firms after the first oil crisis of the 1970s, unlike the case of non-unionized firms.

This indicates that the increased cost of labor adjustment in the black compelled unionized firms to cut employment only in the red after the first oil crisis, which shows that the deficit adjustment pattern was established after the event.