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A Decomposition of the Decline in Japanese Nominal Wages in the 1990s and 2000s

Author

Listed:
  • Kodama, Naomi
  • Inui, Tomohiko
  • Kwon, Hyeogug

Abstract

In the 1990s and the 2000s, the average nominal wage in Japan declined continuously. This is a sharp contrast to wage trends in other developed countries in the same period. This study seeks to provide new quantitative evidence on the possible factors contributing to the nominal wage decline in Japan’s so-called “two lost decades” employing the Blinder-Oaxaca decomposition method using data from the Basic Survey on Wage Structure for 1993-2008. We find that half of the decline of the average wage in the total economy is due to the growing employment share of low-wage industries. Further, we decompose changes in average wages at the industry level for three subperiods representing different phases of the business cycle in Japan. Controlling for worker characteristics, we find the wages of workers in the manufacturing, wholesale, and medical, health care, and welfare industries declined between 1998 and 2003. Further, our results show that 1997 was the turning point in terms of changes in the wage structure. In addition, we find that wages for workers with the same characteristics continued to decline in the 2000s, albeit at a slower pace, and the main factor responsible for the wage decline was changes in the composition of the workforce in the wholesale, retail, and medical, health care, and welfare industries.

Suggested Citation

  • Kodama, Naomi & Inui, Tomohiko & Kwon, Hyeogug, 2014. "A Decomposition of the Decline in Japanese Nominal Wages in the 1990s and 2000s," CIS Discussion paper series 631, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:cisdps:631
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/26827/1/DP631.pdf
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    References listed on IDEAS

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    1. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
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    3. Martin Sommer, 2009. "Why Are Japanese Wages So Sluggish?," IMF Working Papers 09/97, International Monetary Fund.
    4. 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.
    5. Christofides, Louis N. & Li, Dingding, 2005. "Nominal and real wage rigidity in a friction model," Economics Letters, Elsevier, vol. 87(2), pages 235-241, May.
    6. Marcus Hagedorn & Iourii Manovskii, 2013. "Job Selection and Wages over the Business Cycle," American Economic Review, American Economic Association, vol. 103(2), pages 771-803, April.
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    10. INUI Tomohiko & KIM Young Gak & KWON Hyeog Ug & FUKAO Kyoji, 2011. "Productivity Dynamics and Japan's Economic Growth: An empirical analysis based on the Financial Statements Statistics of Corporations by Industry (Japanese)," Discussion Papers (Japanese) 11042, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. YOKOYAMA Izumi & KODAMA Naomi & HIGUCHI Yoshio, 2016. "What Happened to Wage Inequality in Japan during the Last 25 Years? Evidence from the FFL decomposition method," Discussion papers 16081, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    nominal wage decline; deflation; changes in industrial structure; trade and labor market interactions;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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