In contrast, Japanese firms, which place priority on long-term employment, tend to first cut working hours and raise the number of employed persons not at work in response to a decrease in demand, and thereby try to maintain employment. This difference in the employment stance may also reflect the distinct safety nets in the respective labor markets.
In the U.S., unemployment insurance benefits, which are paid directly to individual workers, play an important role. In Japan, employment adjustment subsidies, which cover firms' wage payments, help firms hoard labor even during a recession. 2  The differences in labor market dynamics have affected developments in the inflation rates (Chart 4).