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Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

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  • Yannick Kalantzis
  • Ryo Kambayashi
  • Sébastien Lechevalier

Abstract

This paper aims at explaining two stylized facts of the Lost Decade in Japan: rising wage inequalities and increasing firm-level productivity differentials. We build a model where firms can choose between efficiency wages with endogenous effort and competitive wages, and show that it can replicate those facts. Using Japanese microeconomic data, we find support for the existence of efficiency wages in one group of firms and competitive wages in the other group. Based on those results, a simulation shows that the share of firms using efficiency wages has declined, within sectors, during the Lost Decade, as predicted by the model.

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Bibliographic Info

Article provided by CEIS in its journal LABOUR.

Volume (Year): 26 (2012)
Issue (Month): 4 (December)
Pages: 514-541

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Handle: RePEc:bla:labour:v:26:y:2012:i:4:p:514-541

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References

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  1. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109.
  2. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: a Semiparametric Approach," Cahiers de recherche 9406, Universite de Montreal, Departement de sciences economiques.
  3. William T. Dickens & Kevin Lang, 1985. "A Test of Dual Labor Market Theory," NBER Working Papers 1314, National Bureau of Economic Research, Inc.
  4. Leonardi, Marco, 2003. "Firms' Heterogeneity in Capital/Labor Ratios and Wage Inequality," Royal Economic Society Annual Conference 2003 136, Royal Economic Society.
  5. Kyoji Fukao & Hyeog Ug Kwon, 2005. "Why Did Japan's TFP Growth Slow Down in the Lost Decade? An Empirical Analysis Based on Firm-Level Data of Manufacturing Firms," Discussion papers 05004, Research Institute of Economy, Trade and Industry (RIETI).
  6. Giulia Faggio & Kjell Salvanes & John Van Reenen, 2007. "The Evolution of Inequality in Productivity and Wages: Panel Data Evidence," CEP Discussion Papers dp0821, Centre for Economic Performance, LSE.
  7. Alfonso Sousa-Poza, 2004. "Is the Swiss Labor Market Segmented? An Analysis Using Alternative Approaches," LABOUR, CEIS, vol. 18(1), pages 131-161, 03.
  8. Ryo Kambayashi & Daiji Kawaguchi & Izumi Yokoyama, 2008. "Wage distribution in Japan, 1989-2003," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1329-1350, November.
  9. Dunne, Timothy & Foster, Lucia & Haltiwanger, John C. & Troske, Kenneth, 2002. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," IZA Discussion Papers 563, Institute for the Study of Labor (IZA).
  10. Richard B. Freeman & James L. Medoff, 1983. "Trade Unions and Productivity: Some New Evidence on an Old Issue," NBER Working Papers 1249, National Bureau of Economic Research, Inc.
  11. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
  12. Kato, Takao, 2001. "The End of Lifetime Employment in Japan?: Evidence from National Surveys and Field Research," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 489-514, December.
  13. Bruno Amable & Donatella Gatti, 2004. "Product market competition, job security, and aggregate employment," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 667-686, October.
  14. ITO Keiko & Sebastien LECHEVALIER, 2008. "The evolution of the productivity dispersion of firms - A reevaluation of its determinants in the case of Japan," Discussion papers 08014, Research Institute of Economy, Trade and Industry (RIETI).
  15. Marco Leonardi, 2007. "Firm heterogeneity in capital-labour ratios and wage inequality," Economic Journal, Royal Economic Society, vol. 117(518), pages 375-398, 03.
  16. Masahiro Abe & Isao Ohashi, 2004. "Inter-Industry and Firm Size Effects on Wage Differentials and Efficiency Wages in Japan," Hi-Stat Discussion Paper Series d04-25, Institute of Economic Research, Hitotsubashi University.
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Cited by:
  1. Sebastien Lechevalier & Cyrille Dossougoin & Christophe Hurlin & Satoko Takaoka, 2014. "How did the Japanese Employment System Change?Investigating the Heterogeneity of Downsizing Practices across Firms," KIER Working Papers 883, Kyoto University, Institute of Economic Research.

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