Decomposing Wage Stagnation: Employment Reallocation, Wage Structure,and Demographics

Average wages in Japan rose until the mid-1990s but stagnated thereafter. This paper studies Japan's long-run wage stagnation by decomposing changes in average log real hourly wages from 1980 to 2024 into four components: demographic change across worker types, changes in relative employment shares across job types, changes in relative wages across job types, and wage growth within job types. The framework combines a shift-share decomposition across worker types with an extension of the Olley-Pakes decomposition that separates employment reallocation from changes in relative wages across job types. Wage growth within job types contributes positively over the full sample period, but demographic change and employment reallocation partly offset it. Between 1996 and 2014, all four components are negative. The negative contribution from employment reallocation is not limited to the expansion of part-time employment, but reflects broader shifts across job types defined by employment type, establishment size, and industry.