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

Author

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  • Kuroda, Sachiko

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

  • Yamamoto, Isamu

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

Abstract

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.

Suggested Citation

  • Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part II): Examinations Using a Friction Model," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 31-68, August.
  • Handle: RePEc:ime:imemes:v:21:y:2003:i:2:p:31-68
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Kim, Jinill & Ruge-Murcia, Francisco J., 2011. "Monetary policy when wages are downwardly rigid: Friedman meets Tobin," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2064-2077.
    2. Christofides, Louis N. & Li, Dingding, 2005. "Nominal and real wage rigidity in a friction model," Economics Letters, Elsevier, vol. 87(2), pages 235-241, May.
    3. KURODA Sachiko & YAMAMOTO Isamu, 2011. "Firm's demand for work hours: Evidence from multi-country and matched firm-worker data," Discussion papers 11024, Research Institute of Economy, Trade and Industry (RIETI).
    4. Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers 2006-057, Federal Reserve Bank of St. Louis.
    5. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters,in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
    6. Barno Blaes, 2008. "Abwärtsnominal- und Tariflohnstarrheit in Deutschland," Working Papers 049, Bavarian Graduate Program in Economics (BGPE).
    7. Jinill KIM & Francisco RUGE-MURCIA, 2016. "Extreme Events and Optimal Monetary Policy," Cahiers de recherche 09-2016, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    8. 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.
    9. Muto, Ichiro & Shintani, Kohei, 2014. "An Empirical Study on the New Keynesian Wage Phillips Curve: Japan and the US," MPRA Paper 53934, University Library of Munich, Germany.
    10. Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," RBA Annual Conference Volume,in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
    11. Towa Tachibana & Sekine & Toshitaka, 2004. "Land Investment by Japanese Firms during and after the Bubble Period," Econometric Society 2004 Far Eastern Meetings 631, Econometric Society.
    12. Sara Gabriela Castellanos Pascacio & Rodrigo García Verdú & David Kaplan, 2004. "Wage Rigidities in Mexico: Evidence from the Administrative Records of the Mexican Social Security Institute (Instituto Mexicano del Seguro Social)," Working Papers 2004-03, Banco de México.
    13. Barno Blaes, 2008. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne," Working Papers 048, Bavarian Graduate Program in Economics (BGPE).
    14. Carlsson, Mikael & Westermark, Andreas, 2007. "Optimal Monetary Policy under Downward Nominal Wage Rigidity," Working Paper Series 206, Sveriges Riksbank (Central Bank of Sweden).
    15. Stephanie Schmitt-Grohé & Martín Uribe, 2017. "Liquidity Traps and Jobless Recoveries," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 165-204, January.
    16. Sachiko Kuroda & Isamu Yamamoto, 2014. "Is Downward Wage Flexibility the Primary Factor of Japan's Prolonged Deflation?," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 143-158, January.
    17. Hitoshi Fuchi & Nobuyuki Oda & Hiroshi Ugai, 2007. "The Costs and Benefits of Inflation: Evaluation for Japan's Economy," Bank of Japan Working Paper Series 07-E-10, Bank of Japan.
    18. Kengo Yasui & Shinji Takenaka, 2005. "Deflation and Downward Nominal Wage Rigidity: Evidence from Japan," Discussion Papers in Economics and Business 05-21, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    19. Kuroda, Sachiko & Yamamoto, Isamu, 2013. "Firms’ demand for work hours: Evidence from matched firm-worker data in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 57-73.
    20. Fuchi, Hitoshi & Oda, Nobuyuki & Ugai, Hiroshi, 2008. "Optimal inflation for Japan's economy," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 439-475, December.
    21. Shin-Ichi Nishiyama, 2009. "Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting," Staff Working Papers 09-2, Bank of Canada.
    22. Bläs, Barno, 2006. "Ausmaß und reale Konsequenzen nach unter starrer Nominallöhne. Eine Untersuchung für den deutschen Arbeitsmarkt," University of Regensburg Working Papers in Business, Economics and Management Information Systems 416, University of Regensburg, Department of Economics.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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