Technical Report How the 2003 Social Insurance Premium Reform Affects Firm Behavior

Kodama, Naomi  ,  Yokoyama, Izumi

2015-09 , Institute of Economic Research, Hitotsubashi University
In 2003, a total reward system was introduced for employee pension insurance and health insurance in Japan. This reform increased the insurance premiums for bonuses from 2% to 21.87%, and decreased the premiums for monthly salary from 25.96% to 21.87%. As a result, the social insurance premium burden of some companies increased, while that of others decreased. The variation, depending on the difference in the bonus/monthly salary ratio before the introduction of the total reward system, allows us to measure the influence of the increased social insurance premium burden using a natural experiment. This paper provides new evidence on the possible effect that the 2003 total reward system had on the behavior of firms, specifically its impact on labor demand and wages. Consequently, many firms reduced the number of employees, increased the average number of working hours, and maintained the total number of working hours. In terms of the costs to firms, the increase in average monthly salary associated with longer working hours was compensated for by a decrease in the amount of the average bonus. Our finding of the effects of the 2003 reform on the behavior of firms could lead to the general effects of the increasing social insurance premium burden found in many developed countries.

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