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Are Japanese Nominal Wages Downwardly Rigid? (Part II): Examinations Using a Friction Model

  • Kuroda, Sachiko

    (Institute for Monetary and Econ Studies, Bank of Japan)

  • Yamamoto, Isamu

    (Institute for Monetary and Econ Studies, Bank of Japan)

This paper confirms the existence of downward nominal wage rigidity in Japan as presented in Kuroda and Yamamoto (2003) and quantifies the extent of this downward nominal wage rigidity by applying econometric methods to Japanese longitudinal data. Using 1993-98 data, we find that downward nominal wage rigidity does exist in Japan even after controlling the individual characteristics and the measurement errors in reported nominal wages. In addition, we find that the extent of the downward nominal wage rigidity is sensitive to the choice of wage measures. While the hourly wages of part-time female employees exhibit almost complete downward rigidity, the extents of the downward rigidity are limited for the regular monthly salaries and annual earnings of full- time employees. For example, our estimates show that the regular monthly salaries of full-time male and female employees will not be cut as long as the notional wages do not decline by more than about 7.7 percent and 4.0 percent, respectively. However, when the notional wage change rates exceed these threshold values, nominal wage cuts do occur.

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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 21 (2003)
Issue (Month): 2 (August)
Pages: 31-68

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Handle: RePEc:ime:imemes:v:21:y:2003:i:2:p:31-68
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  1. Farès, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Staff Working Papers 00-1, Bank of Canada.
  2. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
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  8. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series 95-45, Board of Governors of the Federal Reserve System (U.S.).
  9. Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March.
  10. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
  11. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
  12. Paul J. Devereux & Joseph G. Altonji, 2000. "The extent and consequences of downward nominal wage rigidity," Open Access publications 10197/311, School of Economics, University College Dublin.
  13. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part I): Examinations of Nominal Wage Change Distributions," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 1-29, August.
  14. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
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