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Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

Author

Listed:
  • Yannick Kalantzis
  • Ryo Kambayashi
  • Sébastien Lechevalier

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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Suggested Citation

  • Yannick Kalantzis & Ryo Kambayashi & Sébastien Lechevalier, 2012. "Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms," LABOUR, CEIS, vol. 26(4), pages 514-541, December.
    • Handle: RePEc:bla:labour:v:26:y:2012:i:4:p:514-541
    DOI: 10.1111/labr.2012.26.issue-4
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    Citations

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    Cited by:

    1. Hiroshi Teruyama & Hiroyuki Toda, 2017. "Polarization and Persistence in the Japanese Labor Market," KIER Working Papers 957, Kyoto University, Institute of Economic Research.
    2. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2020. "Labour Market Institutions, Technology and Rent Sharing," IZA Discussion Papers 13155, Institute of Labor Economics (IZA).
    3. Kyoji Fukao & Cristiano Perugini, 2021. "The Long‐Run Dynamics of the Labor Share in Japan," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(2), pages 445-480, June.
    4. repec:spo:wpmain:info:hdl:2441/3bvs8clr5k9dqqcbq7j5ul2o65 is not listed on IDEAS
    5. Jean Barthélemy & Magali Marx, 2012. "Generalizing the Taylor Principle: New Comment," Sciences Po Economics Publications (main) hal-03461113, HAL.
    6. Teruyama, Hiroshi & Goto, Yasuo & Lechevalier, Sebastien, 2018. "Firm-level labor demand for and macroeconomic increases in non-regular workers in Japan," Japan and the World Economy, Elsevier, vol. 48(C), pages 90-105.
    7. Sebastien Lechevalier, 2020. "Kitagawa A., Ohta S. and H. Teruyama: the changing japanese labor market: theory and evidence, XI," Journal of Economics, Springer, vol. 130(2), pages 219-223, July.
    8. Hiroshi Teruyama & Hiroyuki Toda, 2017. "Wage Profiles in the Japanese Dual Labor Market," KIER Working Papers 961, Kyoto University, Institute of Economic Research.
    9. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).
    10. HASHIMOTO, Yuki, 2025. "Global competition and labor-intensive production in SMEs: Firm-level evidence from Japan at the threshold of the lost decades," Journal of the Japanese and International Economies, Elsevier, vol. 75(C).
    11. Kenta IKEUCHI & Kyoji FUKAO & Cristiano PERUGINI, 2021. "Establishment Size, Workforce Composition and the College Wage Gap in Japan," Discussion papers 21022, Research Institute of Economy, Trade and Industry (RIETI).
    12. Kyoji Fukao & Cristiano Perugini & Fabrizio Pompei, 2023. "Non‐standard Employment and Rent‐sharing," Economica, London School of Economics and Political Science, vol. 90(357), pages 178-211, January.
    13. Shogo Ogawa, 2019. "Dynamic analysis of a disequilibrium macroeconomic model with dual labor markets," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 525-550, July.
    14. 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.

    More about this item

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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