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The Normalization of Wage Dynamics

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  • Takeo Hoshi
  • Anil K. Kashyap

Abstract

In an article published in 2021, Hoshi and Kashyap find that the link between wage inflation and labor market conditions in Japan changed starting in the late 1990s. The link between wage inflation and price inflation also disappeared around the same time. Two factors were identified as the main reasons why wages became less sensitive to the tightness of the labor market: firms' labor hoarding of full‐time workers and an increasing reliance on newly hired part‐time workers. Both of these factors started to disappear by the late 2010s. After re‐confirming the main results in the 2021 article by Hoshi and Kashyap, this paper finds that wage inflation has become sensitive to the unemployment rate (an important labor indicator). We also find weak evidence that the link between wage inflation and price inflation might be re‐emerging.

Suggested Citation

  • Takeo Hoshi & Anil K. Kashyap, 2025. "The Normalization of Wage Dynamics," Asian Economic Policy Review, Japan Center for Economic Research, vol. 20(2), pages 237-246, July.
    • Handle: RePEc:bla:asiapr:v:20:y:2025:i:2:p:237-246
    DOI: 10.1111/aepr.12503
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    References listed on IDEAS

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    1. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(3), pages 315-352, June.
    2. Hoshi,Takeo & Lipscy,Phillip Y. (ed.), 2021. "The Political Economy of the Abe Government and Abenomics Reforms," Cambridge Books, Cambridge University Press, number 9781108843959, Enero-Abr.
    3. Muto Ichiro & Shintani Kohei, 2020. "An empirical study on the New Keynesian wage Phillips curve: Japan and the US," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-17, January.
    4. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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