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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 28, No. 3, pp.265-283
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2015
Received 10 Apr 2015 Revised 13 Jul 2015 Accepted 05 Aug 2015

The Impact of Demand Shock on the Employment of Temporary Agency Workers: Evidence from Japan during the Global Financial Crisis

Kaoru Hosono ; Miho Takizawa ; Kotaro Tsuru
Corresponding author, Professor, Faculty of Economics, Gakushuin University, 1-5-1 Mejiro, Toshima-ku, Tokyo 171-8588, JAPAN, Tel: +81-3-5992-4909, Fax: +81-3-5992-1007 kaoru.hosono@gakushuin.ac.jp
Associate Professor, Department of Economics, Toyo University, 5-28-20 Hakusan Bunkyo-ku, Tokyo 112-8686, JAPAN, Tel: +81-3-3945-7423, Fax: +81-3-3945-7667 takizawa@toyo.jp
Professor, Graduate School of Business and Commerce, Keio University, 2-15-45 Mita Minato-ku, Tokyo 108-8345, JAPAN, Tel: +81-3-5427-1767, Fax: +81-3-5418-6584 tsuru@fbc.keio.ac.jp

JEL Classification: J21, J23, E24

Abstract

This study investigates the effect of a negative demand shock on the composition of worker types at firms and examines the change in the share of temporary agency workers. The 2007-2009 global financial crisis is used as the natural experiment to clearly identify the causal link between the demand encountered by a firm and the composition of its workforce in terms of worker types, as well as to rule out any reverse causation. The decrease in demand experienced by Japanese exporting firms is adopted as the exogenous demand shock. Results indicate that compared with other firms, those with higher export ratio, lower liquid asset ratio, higher share of temporary agency workers, larger increase in the share of temporary agency worker ratio, and lower volatility in their sales prior to the crisis decreased their share of temporary agency workers in response to the demand shock. The quantitative effects of these pre-crisis firm characteristics are all economically significant. These results suggest that temporary agency workers serve as a buffer to demand shocks, and liquid assets work as a substitute for temporary agency workers.

Keywords:

Demand shock, Temporary agency worker, Employment adjustment

Acknowledgments

This study was conducted as part of the project entitled “Reform of Labor Market Institutions” undertaken at the Research Institute of Economy, Trade and Industry (RIETI). The authors are grateful for the helpful comments and suggestions by the seminar participants of RIETI. K. Tsuru and K. Hosono acknowledge the financial support granted by the Grant-in-Aid for Scientific Research (C) No. 23530310, JSPS. K. Tsuru also recognizes the financial support given by MEXT-Supported Program for the Strategic Research Foundation at Private Universities (S1391003).

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