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Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate

Author

Listed:
  • Kuroda, Sachiko

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

  • Yamamoto, Isamu

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

Abstract

In this paper, we investigate the existence and persistence of downward nominal wage rigidity (DNWR) for full-time employees based on the wage fluctuations observed in Japan following the bursting of the bubble economy of the early 1990s. We also examine the extent to which DNWR has boosted firms' real payroll adjusted for labor productivity. We then estimate a version of the Phillips curve with DNWR to measure the impact of DNWR on Japan's unemployment rate. We summarize the results of this paper as follows. First, DNWR measured by the total annual earnings of full-time employees in Japan was observed from 1992 to 1997, but disappeared after 1998. Second, DNWR observed from 1992 to 1997 seemed to have raised firms' real payroll adjusted for labor productivity during a period in which both inflation and labor productivity growth were low. Third, our estimation results suggest that DNWR from 1992 to 1997 raised the unemployment rate by approximately 1 percentage point at the most, although it may overstate the effect of DNWR on unemployment.

Suggested Citation

  • Kuroda, Sachiko & Yamamoto, Isamu, 2005. "Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 1-29, May.
    • Handle: RePEc:ime:imemes:v:23:y:2005:i:2:p:1-29
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    References listed on IDEAS

    as
    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.
    2. William Poole, 1999. "Is Inflation Too Low?," Cato Journal, Cato Journal, Cato Institute, vol. 18(3), pages 453-464, Winter.
    3. Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
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    7. Nishizaki, Kenji & Watanabe, Tsutomu, 2000. "Output-Inflation Trade-Off at Near-Zero Inflation Rates," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 304-326, December.
    8. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    9. Louis N. Christofides & Man Tuen Leung, 2002. "Nominal Wage Rigidity in Contract Data: A Parametric Approach," University of Cyprus Working Papers in Economics 0210, University of Cyprus Department of Economics.
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    Cited by:

    1. Kenn Ariga & Ryo Kambayashi, 2010. "Employment and Wage Adjustments at Firms under Distress in Japan: An Analysis Based upon a Survey," NBER Chapters, in: Sticky Prices and Inflation Dynamics (NBER-TCER-CEPR), pages 213-235, National Bureau of Economic Research, Inc.
    2. Arias, Jonas E. & Erceg, Christopher & Trabandt, Mathias, 2016. "The macroeconomic risks of undesirably low inflation," European Economic Review, Elsevier, vol. 88(C), pages 88-107.
    3. 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.
    4. Esteban-Pretel, Julen & Tanaka, Ryuichi & Meng, Xiangcai, 2017. "Changes in Japan’s labor market during the Lost Decade and the role of demographics," Journal of the Japanese and International Economies, Elsevier, vol. 43(C), pages 19-37.
    5. Sugo, Tomohiro & Ueda, Kozo, 2008. "Estimating a dynamic stochastic general equilibrium model for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 476-502, December.
    6. Emmanuel De Veirman, 2009. "What Makes the Output-Inflation Trade-Off Change? The Absence of Accelerating Deflation in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1117-1140, September.
    7. Scott M. Fuess, 2010. "Job Centers: Are Finders Keepers? A Note From Japan," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 136-143, January.
    8. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
    9. 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.
    10. 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.
    11. Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May.
    12. Tomohide Mineyama & Wataru Hirata & Kenji Nishizaki, 2019. "Inflation and Social Welfare in a New Keynesian Model: The Case of Japan and the U.S," Bank of Japan Working Paper Series 19-E-10, Bank of Japan.
    13. Wataru Hirata & Toshitaka Maruyama & Tomohide Mineyama, 2020. "Flattening of the Wage Phillips Curve and Downward Nominal Wage Rigidity: The Japanese Experience in the 2010s," Bank of Japan Working Paper Series 20-E-4, Bank of Japan.
    14. Barno Blaes, 2008. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne," Working Papers 048, Bavarian Graduate Program in Economics (BGPE).
    15. Kishaba, Yui & Okuda, Tatsushi, 2025. "The slope of the Phillips curve for service prices in Japan: Regional panel data approach," Journal of the Japanese and International Economies, Elsevier, vol. 78(C).
    16. Nao Sudo & Michio Suzuki & Tomoaki Yamada, 2012. "Inequalities in Japanese Economy during the Lost Decades," CIRJE F-Series CIRJE-F-856, CIRJE, Faculty of Economics, University of Tokyo.
    17. Rod Tyers & Jenny Corbett, 2012. "Japan's economic slowdown and its global implications: a review of the economic modelling," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 26(2), pages 1-28, November.
    18. Daniel J. Benjamin, 2015. "A Theory of Fairness in Labour Markets," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 182-225, June.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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