Downsizing and the deinstitutionalization of permanent employment in Japan

Ahmadjian, Christina L.; Robinson, Patricia

This study examines the process by which the Japanese permanent employment system was increasingly deinstitutionalized and replaced by downsizing among publicly listed companies in Japan between 1990 and 1997. We found that although economic pressure triggered downsizing, social and institutional pressures shaped the pace and process by which downsizing spread. The greater a firm's legitimacy and visibility, and the more it depended on organizations and institutions that supported the institution of permanent employment, the more hesitant it was to abandon that practice, even when it had much to lose financially. Specifically, large, old, and high-reputation firms were resistant to downsizing at first, as were firms with high levels of human capital, as reflected by high wages. In contrast, firms with high levels of foreign ownership were more likely to downsize. We found that these social and institutional pressures, however, diminished as downsizing spread across the population. We argue that this is due to a "safety in numbers" effect. As downsizing became more prominent, the actions of any single firm were less likely to be noticed and criticized.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 189
Published Here
February 10, 2011