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Unemployment in Japan: A look at the ‘lost decade’

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Author Info
Pablo , Agnese
Hector , Sala

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Abstract

The ‘lost decade’ in Japan was a period of steep surge in unemployment. It started in 1991 with the unemployment rate at 2.1%, and ended in 2002 when it reached a historical maximum of 5.5%. To assess the main causes of this rise we take a macroeconomic perspective and estimate a reduced-form unemployment model. This model, containing a rich set of variables, yields an interesting picture. The fall of private investment played the main role, while private consumption and the boost in government spending partially offset this recessive effect. In turn, the initial rise in participation rates and the East Asian crisis after 1997 added new burdens to the labor market. We conclude that a crucial issue in the medium-run is to avoid the consequences of the prolonged decline in investment in terms of reduced productivity growth and a weaker international trade performance.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14332.

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Date of creation: 02 Sep 2008
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Publication status: Published in Asia Pacific Journal of Economics and Business 1.12(2008): pp. 16-35
Handle: RePEc:pra:mprapa:14332

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Related research
Keywords: Unemployment; reduced-form models; investment; economic policy; East Asian crisis;

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Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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