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Are Productivity and Wages Decoupling in Japan? Divergence between macro and micro relationships

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  • Masayuki MORIKAWA

Abstract

Using micro-level data on Japanese firms, this study analyzes the relationship between productivity and wages, with a focus on comparing aggregate-level and firm-level figures. The main findings are as follows. First, at the macro level, productivity growth and real wage growth are diverging, but, at the firm level, there is a strong positive relationship between productivity growth and wage growth, indicating that productivity and wages have not decoupled. Second, a divergence exists between simple average and aggregate (i.e., weighted average) wage trends, with aggregate real wages exhibiting a greater downward trend. Third, dynamic Olley-Pakes decomposition reveals that the covariance term contributes negatively to changes in real wages. In other words, the relationship between higher value-added share and higher wages at the firm level is weakening. In contrast, the covariance term has a large positive effect on productivity growth. These results suggest that while productivity growth is essential for raising real wages, policies that promote productivity through resource reallocation may conflict with those aimed at increasing labor’s share of value-added.

Suggested Citation

  • Masayuki MORIKAWA, 2025. "Are Productivity and Wages Decoupling in Japan? Divergence between macro and micro relationships," Discussion papers 25106, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:25106
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