A Schumpeterian Microfoundation of the Geometric Brownian Motion of Firm Size and Zipf's Law

Under Japan's spousal and spousal special exemption system, married women whose husbands earn less than a certain annual income are eligible for the spousal exemption. Additionally, the minimum wage is raised annually in Japan, and married women working as part-timers, who are vulnerable to the effects of minimum wage increases, may experience an increase in annual income if they do not adjust their working hours. Therefore, this study examines how the interaction between the spousal exemption and minimum wage systems affects the labor supply of married women engaged in part-time work using single women as a control group. This study particularly examines, under Japan's spousal exemption and spousal special system before 2018, whether married women who worked with annual earnings of 1.05 million yen or less (where the amount of the spousal exemption begins to decrease) or 1.41 million yen per year (where the exemption disappears) adjust their labor supply in response to an increase in the minimum wage. The results show that married women working with annual earnings lower than 1.05 million yen adjust their working hours more in response to the minimum wage increase than married women working with annual earnings lower than 1.41 million yen. For married women whose annual earnings were 1.05 million yen or less in the previous year, an increase of one yen in the minimum wage decreases their weekly work hours by 1.266 hours. The scale of adjustment in work hours is larger for married women whose annual earnings are close to 1.05 million yen, particularly in the subgroup of 0.9 million yen or more. These findings are robust even when controlling for heterogeneity in the selection of annual income groups.