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Wage and Productivity differentials in Japan. The Role of Labor Market Mechanisms

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  • Kalantzis, Y.
  • Kambayashi, R.
  • Lechevalier, S.

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

Paper provided by Banque de France in its series Working papers with number 399.

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Length: 45 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:399

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Related research

Keywords: heterogeneity of firms; efficiency wages; job security; effort; productivity differentials; wage inequalities; matched employer-employee data.;

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References

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  1. 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.
  2. Timothy Dunne & Lucia Foster & John Haltiwanger & Kenneth Troske, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," Working Papers 00-01, Center for Economic Studies, U.S. Census Bureau.
  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. 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.
  5. Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December.
  6. Leonardi, Marco, 2003. "Firm Heterogeneity in Capital/Labor Ratios and Wage Inequality," IZA Discussion Papers 909, Institute for the Study of Labor (IZA).
  7. 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.
  8. Alfonso Sousa-Poza, 2004. "Is the Swiss Labor Market Segmented? An Analysis Using Alternative Approaches," LABOUR, CEIS, vol. 18(1), pages 131-161, 03.
  9. 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.
  10. 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.
  11. Kyoji Fukao & Hyeog Ug Kwon, 2006. "Why Did Japan'S Tfp Growth Slow Down In The Lost Decade? An Empirical Analysis Based On Firm-Level Data Of Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 195-228.
  12. 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).
  13. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109.
  14. 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.
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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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