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The Lost Decade in the Japanese Labor Market : Labor’s share and Okun’s Law

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  • Shigeru Wakita

    (PRI)

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    Abstract

    The purpose of this study is to reexamine two empirical regularities in the Japanese labor market : the constant labor share and Okun's law. The former law relates to the price of labor in the labor market while the latter is a quantity law; they represent suitable benchmarks for judging the condition of the labor market. Although there are more elaborate statistical techniques, these laws are frequently used because they can clarify the macroeconomic situation at a glance. First, a constant labor share is implied in theory by the CobbDouglas production function. Thus, labors share should be based on the production function. Labors share based on income has only been rising because of massive depreciation. Secondly, there have been several structural breaks in Okun's law since the bubble collapsed, and the potential growth rate has fallen.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Labor Economics Working Papers with number 22317.

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    Date of creation: Jan 2006
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    Handle: RePEc:eab:laborw:22317

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    Keywords: labor share; Okun's law;

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    1. Cadiou, Loı̈c & Dées, Stéphane & Laffargue, Jean-Pierre, 2003. "A computational general equilibrium model with vintage capital," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(11), pages 1961-1991.
    2. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, Elsevier, vol. 40(1), pages 15-32, January.
    3. Michele Boldrin & Michael Horvath, 1994. "Labor Contracts and Business Cycles," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1068, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Andrew Young, 2004. "Labor's Share Fluctuations, Biased Technical Change, and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 916-931, October.
    5. Kessing, Sebastian, 2002. "A note on the determinants of labour share movements," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-30, Social Science Research Center Berlin (WZB).
    6. Gomme, Paul & Greenwood, Jeremy, 1995. "On the cyclical allocation of risk," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(1-2), pages 91-124.
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