The Impact of Downward Nominal Wage Rigidity on the Unemployment Rate: Quantitative Evidence from Japan
To what extent does downward nominal wage rigidity (DNWR) raise the unemployment rate during periods of low inflation or deflation? To answer this question, we simulate the impact on the male unemployment rate in Japan, by incorporating the DNWR of full-time male employees as estimated by Kuroda and Yamamoto into the general equilibrium model of Akerlof et al. The simulation results show the following. First, the DNWR estimated by Kuroda and Yamamoto with Japanese longitudinal data from 1993-98 has a minor impact on the unemployment rate compared with the case of perfect DNWR. Nevertheless, this impact is not trivial in the sense that it raises the unemployment rate by as much as 1.8 percentage points under the baseline parameters adopted in this paper. Second regarding the relationship with the rate of inflation, DNWR does not cause unemployment as long as the inflation rate is approximately 2.4 percent or higher whereas its effects tend to increase gradually as the inflation rate falls below 2.4 percent. When inflation is below approximately 1 percent, however, the marginal increase in unemployment attributable to DNWR is small since DNWR is moderated by the adjustments to bonuses and extensive wage cuts observed in our Japanese data sets. Instead, under these conditions, it is the additional unemployment brought by labor market distortions that becomes the issue.
Volume (Year): 21 (2003)
Issue (Month): 4 (December)
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
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.:
- 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.
- Gary D. Hansen & Ayse Imrohoroglu, 1990.
"The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard,"
UCLA Economics Working Papers
583, UCLA Department of Economics.
- Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
- Hansen, G.D. & Imrohoroglu, A., 1990. "The Role Of Unemployment Insurance In An Economy With Liquidity Constraints And Moral Hazard," Papers 21, California Los Angeles - Applied Econometrics.
- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
- Fehr, Ernst & Götte, Lorenz, 2007.
"Robustness and Real Consequences of Nominal Wage Rigidity,"
Kiel Working Papers
1343, Kiel Institute for the World Economy (IfW).
- Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 779-804, May.
- Ernst Fehr & Lorenz Goette, 2004. "Robustness And Real Consequences Of Nominal Wage Rigidity," Macroeconomics 0409025, EconWPA.
- Ernst Fehr & Lorenz Götte, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series 335, CESifo Group Munich.
- Ernst Fehr & Lorenz Goette, "undated". "Robustness and Real Consequences of Nominal Wage Rigidity," IEW - Working Papers 044, Institute for Empirical Research in Economics - University of Zurich.
- Graham, Liam & Snower, Dennis J., 2003.
"The Return of the Long-Run Phillips Curve,"
CEPR Discussion Papers
3691, C.E.P.R. Discussion Papers.
- Genda, Yuji, 1998. "Job Creation and Destruction in Japan, 1991-1995," Journal of the Japanese and International Economies, Elsevier, vol. 12(1), pages 1-23, March.
- Joseph G. Altonji & Paul J. Devereux, 1999.
"The Extent and Consequences of Downward Nominal Wage Rigidity,"
NBER Working Papers
7236, National Bureau of Economic Research, Inc.
- 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.
- Shiratsuka, Shigenori, 2001. "Is There a Desirable Rate of Inflation? A Theoretical and Empirical Survey," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 49-83, May.
- Daron Acemoglu & Robert Shimer, 1999.
"Productivity Gains from Unemployment Insurance,"
99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
- Kuroda, Sachiko, 2003. "Analysis of Changes in Japan's Unemployment Rate Using Gross Flow Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(1), pages 69-104, February.
- Peter J. Kuhn & Herb J. Schuetze, 2001. "Self-employment dynamics and self-employment trends: a study of Canadian men and women, 1982-1998," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 760-784, August.
- Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-787, November.
- McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
- Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
- 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.
- Farès, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Staff Working Papers 00-1, Bank of Canada.
- 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.).
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:21:y:2003:i:4:p:57-85. 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: (Kinken)
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.