SHORT-RUN CONSTRUCTION LABOUR ADJUSTMENT IN JAPAN

Abstract

The construction industry is one of the biggest industries in Japan and has contributed significantly to its rapid development. It has also become one of the major players in the international construction scene. With the industry's overwhelming success both domestically and internationally, it would be unjustifiable not to examine the reasons for its spectacular performance. One interesting aspect is the industry's short-run labour adjustment in response to demand fluctuations. Previous studies in other industries, especially in manufacturing, have expounded on labour flexibility and its critical role in ensuing competitiveness and profitability for the industries. Despite its importance, there has been surprisingly no such work done on the construction industry. Thus, this study attempts to engender interest for further research into short-run labour adjustment in this sector. A regression analysis was carried out using time series data from 1983 to 1999. The dependent variables, employment, working hours and wage rates were regressed against demand changes, the independent variable. It was found that the Japanese construction industry relies primary on working hours and wage adjustment in response to demand changes rather than employment level adjustment. This finding is consistent with prevailing literature on the industry's unique labour market characteristics. The widespread practice of lifetime employment in Japan has led to employment rigidity and flexibility is sought through overtime work, inter-firm transfers and out sourcing. These forms of labour adjustment has the support of the Government and is facilitated by its employment policies. In addition, higher investment in firm-specific capital have the effect of deterring employers from adopting employment adjustment. Therefore, labour flexibility is achieved through the adjustment of working hours and regular wages rates in the Japanese construction industry. This particular form of labour adjustment provides employment security for the employees, yet at the same time, ensures competitiveness and profitability of the construction firms. Hence, this study would be of interest to governments, construction companies and academics who seek to learn from the Japanese experience.