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Job displacement (involuntary job loss due to firm closure or downsizing) affects many workers over the course of their working lives. Displaced workers may face long periods of unemployment and, even when they find new jobs, tend to be paid less and have fewer benefits than in the jobs they held prior to displacement. Helping displaced workers get back into good jobs quickly should be a key goal of labour market policy. This report is the second in a series of reports looking at how this challenge is being tackled in a number of OECD countries. It shows that Japanese employers and the government go to considerable lengths to avoid the displacement of regular workers while also providing considerable income and re-employment support to many of the workers whose jobs cannot be preserved. Challenges for labour market programmes include expanding labour market mobility between regular jobs, improving co-ordination between private and public re-employment assistance for displaced workers, and avoiding that job displacement pushes older workers to the margins of the labour market.

A significant fraction of workers are displaced every year in Japan and many of them experience a difficult adjustment in the labour market, notably in the form of long periods of joblessness and re-employment at significantly lower wages. On average during 2002-08, 1.4% of employees lost their job each year due to economic reasons such as corporate downsizing and business closings. The displacement rate rose to 2.0% during 2009-10, due to the impact of the global financial crisis. The incidence of displacement is somewhat lower in Japan than in the five other OECD countries where comparable estimates could be made. However, it is important to emphasise that care is required when comparing the incidence and the consequences of displacement in different countries.

A well-designed system of income support can minimise the hardship resulting from displacement without unduly dulling the incentive for job losers to move quickly back into jobs. This chapter examines the availability and the adequacy of income support for the displaced workers in Japan. The main source of public income support for displaced workers in Japan is Employment Insurance (EI) and this chapter assesses EI coverage and adequacy for different groups of displaced workers in detail. Other potential sources of public income support for displaced workers are shown to be relatively unimportant for this group. By contrast, private sources of income support are shown to play an important role in Japan for some displaced workers, particularly long-tenure employees in large firms who enrol involuntary early retirement plans.

Workers who are involuntarily displaced from their jobs face substantial economic and social costs. On average during 2002-08, 1.4% of employees lost their job each year in Japan due to economic reasons such as corporate downsizing and business closings. The displacement rate rose above 2.0% in 2009, due to the impact of the global financial crisis, but had returned to its pre-crisis level by 2012. Less than one-half of all displaced workers become re-employed within one year and re-employment rates are particularly low for older workers, women and less educated workers. When they succeed in moving back into employment, many displaced workers earn substantially less than on their prior job and/or accept non-regular employment. The unemployment and earnings losses following job displacement underlie the importance of public policies assisting job losers to find new jobs where then can be economically secure while making good use of their productive skills.

This chapter analyses the most important policy measures that take effect before workers are dismissed, both measures to prevent excessive job displacements and early interventions that provide workers who will be displaced with an early start at finding a suitable new job. Compared with their OECD peers, Japanese employers take an unusually active role in both types of proactive measures. As a consequence, a large part of the government’s role during the pre-dismissal phase consists of encouraging and supporting employers’ efforts to avoid displacements, when possible, and to foster rapid outplacement when it is not. Government also has an important role to play in supporting the private provision of adjustment assistance for displaced workers and filling gaps in that assistance. Currently a particular policy challenge is to effectively implement the welcome policy shift from a heavy emphasis on preserving existing jobs, which came to the fore during the recent recession, to placing more emphasis on helping workers to move smoothly from declining firms and sectors to growing parts of the economy.

This chapter examines the active labour market programmes that are available to help displaced workers, once they are unemployed, to find new jobs and to retrain, when that is appropriate. Japan relies primarily on general job-search assistance and retraining programmes to assist this group, but also operates several targeted programmes for displaced workers that are tailored to their specific difficulties and strengths. The types of services offered by the Hello Work offices and polytechnic schools appear to be well suited in most respects to assist displaced workers to get back into jobs as quickly as possible, although often not into jobs that are as good as those they lost. The government has also shown that it can react very swiftly and flexibly when large numbers of workers are displaced, for example, when there is a mass dismissal or a natural disaster that greatly disrupts a regional labour market, or when job losses surge in a recession. The growing roles of prefectural governments and private placement agencies in assisting displaced workers is a welcome development, but there appears to be scope to better co-ordinate the different services offered to displaced workers.

This chapter examines the prevalence and consequences of job displacement in Japan while taking account of the impacts of Japanese employment practices on employers’ decisions concerning retrenchments and the labour market opportunities of displaced workers. The risk of job displacement in Japan does not appear to have increased during the past decade, but is higher when economic conditions are poor. Some groups of workers are more vulnerable to displacement than others, and spend longer out of work if they are displaced. On average, displaced workers who find new jobs are paid less than on their previous jobs. The limited evidence available suggests that costs of being displaced vary widely and can be large and persistent.

The OECD Employment, Labour and Social Affairs Committee (ELSAC) has decided to carry out a thematic review of policies to help workers who lose their jobs for economic reasons or as a result of structural change to move back into work. This review builds on other recent research conducted by ELSAC on topics such as youth unemployment, activation policy, skills and the labour market impact of the Great Recession.