The discussion of key labour market differences between Japan and other advanced industrialised economies, such as those in the areas of wage growth, length of job tenure and employment adjustment, has stressed the role of recruitment, screening and human capital expenditures on Japanese workers. As we indicate in chapter 2 and elsewhere, the evidence that these expenditures may be important tends to be somewhat indirect, relying on comparative estimates of returns to experience and tenure in wage growth equations. In this chapter, we examine more direct estimates of recruitment and training costs.

The quality of Japanese statistics on the cost of recruitment is unrivalled and we devote considerable attention to this aspect of worker investment. We evaluate the importance of such costs in relation to the earnings of new recruits in the first year of employment as well as to the expected length of tenure with the firm. We also examine recruitment costs in relation to labour turnover. This is clearly an essential consideration: a firm with relatively high per capita expenditure on recruitment may nonetheless require a relatively small recruitment budget if its labour turnover is low. Recruitment and turnover feature prominently as variables in the theoretical labour market literature on such topics as wage contracts, job search and mobility, efficiency wages and firm-union bargaining. Yet, surprisingly little international quantitative evidence is available (Malcomson, 1997). Therefore, this topic is of interest beyond the confines of the Japanese labour market.