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TFP Growth Slowdown and the Japanese Labor Market in the 1990s

  • Julen ESTEBAN-PRETEL
  • NAKAJIMA Ryo
  • TANAKA Ryuichi

Unemployment in Japan nearly tripled during the 1990s. Underlying this upsurge lie an increase in the probability of workers to lose their jobs and a decrease in the probability that the unemployed find jobs. This paper analyzes the sources responsible for these labor market changes in Japan in the decade of the 1990s. We build, calibrate and simulate a neo-classical growth model with search frictions in the labor market. Using actual TFP data, the model is able to reproduce the path of unemployment and the job flows, as well as that of output. We find it to be the decrease in productivity, coupled with the reduction in hours worked, which curtails the profits of firms, inducing a drop in employment and an increase in unemployment.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09003.

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Length: 33 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:eti:dpaper:09003
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