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

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  • Pablo, Agnese
  • Hector, Sala

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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Bibliographic Info

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

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