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The Long‐Run Dynamics of the Labor Share in Japan

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  • Kyoji Fukao
  • Cristiano Perugini

Abstract

The structural transformation started in Japan during the last decades of the past century and the institutional adjustments that followed have significantly reshaped personal and functional income distribution patterns. In this paper we investigate the long‐term drivers of the share of output accruing to labor in Japan. Our contribution lies in extending the theoretical SK schedule model by Bentotila and Saint‐Paul to multiple inputs and in providing new empirical evidence on Japan over the period 1970–2012. Results indicate that low‐knowledge‐intensive market services were mainly responsible for the decline in the labor share in Japan over the four decades considered. This was related to technological change and, more importantly, to labor and product market structural and institutional features. These drivers could have significantly contributed to reducing the bargaining power of labor vis‐à‐vis employers and, consequently, the labor share.

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  • 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.
    • Handle: RePEc:bla:revinw:v:67:y:2021:i:2:p:445-480
    DOI: 10.1111/roiw.12465
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    1. Hideaki Aoyama & Corrado Guilmi & Yoshi Fujiwara & Hiroshi Yoshikawa, 2022. "Dual labor market and the “Phillips curve puzzle”: the Japanese experience," Journal of Evolutionary Economics, Springer, vol. 32(5), pages 1419-1435, November.
    2. Paul, Saumik, 2019. "Labor Income Share Dynamics with Variable Elasticity of Substitution," IZA Discussion Papers 12418, Institute of Labor Economics (IZA).
    3. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2020. "Labour Market Institutions, Technology and Rent Sharing," IZA Discussion Papers 13155, Institute of Labor Economics (IZA).
    4. Bellocchi, Alessandro & Marin, Giovanni & Travaglini, Giuseppe, 2023. "The labor share puzzle: Empirical evidence for European countries," Economic Modelling, Elsevier, vol. 124(C).
    5. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).
    6. Kyoji Fukao & Koji Ito & Cristiano Perugini, 2019. "A Microeconomic Analysis of the Declining Labor Share in Japan," ADB Institute Series on Development Economics, in: Gary Fields & Saumik Paul (ed.), Labor Income Share in Asia, chapter 0, pages 247-267, Springer.
    7. Paul, Saumik, 2019. "A Skeptical Note on the Role of Constant Elasticity of Substitution in Labor Income Share Dynamics," ADBI Working Papers 944, Asian Development Bank Institute.
    8. Higo, Masahiro, 2023. "What caused the downward trend in Japan’s labor share?," Japan and the World Economy, Elsevier, vol. 67(C).

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    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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