IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

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

  • Yannick Kalantzis
  • Ryo Kambayashi
  • Sébastien Lechevalier

Two stylized facts characterized Japan during the so-called Lost Decade (1992-2005): rising wage inequalities and increasing productivity differentials at the firm level. Surprisingly, these features have never been connected in the literature. This paper attempts to fill this gap by proposing an explanation focusing on labor market mechanisms. We first construct an efficiency wage model with two types of firms distinguished by their job security schemes and associated incentive mechanisms. We show that a comparable negative productivity shock at the aggregate level leads to different firm reactions; namely, the model predicts increasing effort from workers in firms employing an efficiency wage mechanism. This leads to increasing productivity and wage differentials and a rise of the share of these firms in the total population of firms. We test this model using Japanese micro data. For the first time, we match the Basic Survey on Wage Structure and the Employment Trend Survey for 2005. The matched worker-firm dataset we obtain allows us to confirm the existence of an efficiency wage mechanism on average. We also divide our sample of firms into two groups using the unknown regime switching regression a la Dickens and Lang (1985), and find that the primary sector, unlike the secondary, is characterized by efficiency wages. We confirm this result with various robustness checks. Finally, we simulate the evolution of the share of the primary sector in the economy and find that it substantially increased between 1981 and 2005 in line with the predictions of our model.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1111/10.1111/labr.2012.26.issue-4
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by CEIS in its journal LABOUR.

Volume (Year): 26 (2012)
Issue (Month): 4 (December)
Pages: 514-541

as
in new window

Handle: RePEc:bla:labour:v:26:y:2012:i:4:p:514-541
Contact details of provider: Postal: Via Columbia, 2 00133 Roma
Phone: 0039 06 2040234
Fax: 0039 06 2020687
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1121-7081
Email:


More information through EDIRC

Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=1121-7081

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kato, Takao, 2001. "The End of Lifetime Employment in Japan?: Evidence from National Surveys and Field Research," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 489-514, December.
  2. Keiko Ito & Sébastien Lechevalier, 2009. "The evolution of the productivity dispersion of firms: a reevaluation of its determinants in the case of Japan," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(3), pages 405-429, October.
  3. Giulia Faggio & Kjell Salvanes & John Van Reenen, 2007. "The Evolution of Inequality in Productivity and Wages: Panel Data Evidence," CEP Discussion Papers dp0821, Centre for Economic Performance, LSE.
  4. Antoine Valeyre, 2004. "Forms of Work Intensification and Economic Performance in French Manufacturing," Eastern Economic Journal, Eastern Economic Association, vol. 30(4), pages 643-658, Fall.
  5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  6. Nicholas Bloom & John Van Reenen, 2010. "Human Resource Management and Productivity," NBER Working Papers 16019, National Bureau of Economic Research, Inc.
  7. Ryo Kambayashi & Daiji Kawaguchi & Izumi Yokoyama, 2008. "Wage distribution in Japan, 1989-2003," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1329-1350, November.
  8. Adam S. Posen & Ryoichi Mikitani (ed.), 2000. "Japan's Financial Crisis and Its Parallels to U. S. Experience," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr13.
  9. Kyoji Fukao & Hyeog Ug Kwon, 2005. "Why Did Japan's TFP Growth Slow Down in the Lost Decade? An Empirical Analysis Based on Firm-Level Data of Manufacturing Firms," Discussion papers 05004, Research Institute of Economy, Trade and Industry (RIETI).
  10. Abraham, Katharine G. & Houseman, Susan N., 1989. "Job security and work force adjustment: How different are U.S. and Japanese practices?," Journal of the Japanese and International Economies, Elsevier, vol. 3(4), pages 500-521, December.
  11. William T. Dickens & Kevin Lang, 1985. "Testing Dual Labor Market Theory: A Reconsideration of the Evidence," NBER Working Papers 1670, National Bureau of Economic Research, Inc.
  12. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109.
  13. Toshiaki Tachibanaki, 2005. "Confronting Income Inequality in Japan: A Comparative Analysis of Causes, Consequences, and Reform," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201585, June.
  14. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  15. Timothy Dunne & Lucia Foster & John Haltiwanger & Kenneth Troske, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," Working Papers 00-01, Center for Economic Studies, U.S. Census Bureau.
  16. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: a Semiparametric Approach," Cahiers de recherche 9406, Universite de Montreal, Departement de sciences economiques.
  17. Houseman, Susan N & Abraham, Katharine G, 1993. "Female Workers as a Buffer in the Japanese Economy," American Economic Review, American Economic Association, vol. 83(2), pages 45-51, May.
  18. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," NBER Working Papers 12216, National Bureau of Economic Research, Inc.
  19. Leonardi, Marco, 2005. "Firm Heterogeneity in Capital labor Ratios and Wage Inequality," Institute for Research on Labor and Employment, Working Paper Series qt1g9514wh, Institute of Industrial Relations, UC Berkeley.
  20. Adam S. Posen & Ryoichi Mikitani (ed.), 2000. "Japan's Financial Crisis and Its Parallels to U. S. Experience," Peterson Institute Press: Special Reports, Peterson Institute for International Economics, number sr13, January.
  21. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
  22. Giovanni Dosi & Sébastien Lechevalier & Angelo Secchi, 2010. "Interfirm heterogeneity: nature, sources and consequences for industrial dynamics. An introduction," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00642680, HAL.
  23. Dickens, William T & Lang, Kevin, 1985. "A Test of Dual Labor Market Theory," American Economic Review, American Economic Association, vol. 75(4), pages 792-805, September.
  24. Scott M. Fuess & Meghan Millea, 2002. "Do Employers Pay Efficiency Wages? Evidence from Japan," Journal of Labor Research, Transaction Publishers, vol. 23(2), pages 278-292, April.
  25. Richard B. Freeman & James L. Medoff, 1983. "Trade Unions and Productivity: Some New Evidence on an Old Issue," NBER Working Papers 1249, National Bureau of Economic Research, Inc.
  26. Bruno Amable & Donatella Gatti, 2004. "Product market competition, job security, and aggregate employment," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 667-686, October.
  27. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  28. Masahiro Abe & Isao Ohashi, 2004. "Inter-Industry and Firm Size Effects on Wage Differentials and Efficiency Wages in Japan," Hi-Stat Discussion Paper Series d04-25, Institute of Economic Research, Hitotsubashi University.
  29. Alfonso Sousa-Poza, 2004. "Is the Swiss Labor Market Segmented? An Analysis Using Alternative Approaches," LABOUR, CEIS, vol. 18(1), pages 131-161, 03.
  30. Stephen Machin, 2008. "An Appraisal of Economic Research on Changes in Wage Inequality," LABOUR, CEIS, vol. 22(s1), pages 7-26, 06.
  31. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-71, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:labour:v:26:y:2012:i:4:p:514-541. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.