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The Long-Run Dynamics of the Labour Share in Japan

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  • Fukao, Kyoji
  • Perugini, Cristiano

Abstract

In this paper we investigate the long-term drivers of the share of output accruing to labour in Japan. We contribute to this strand of literature by extending the theoretical SK schedule model proposed by Bentotila and Saint-Paul (2003) to multiple inputs and by providing new empirical evidence on Japan at detailed sector-level over the period 1970–2012. The econometric analysis is carried out by means of an error correction model (ECM) that allows testing the existence of long-run relationships while accounting for cross-sectional heterogeneities and dependence. Results indicate that the macro-sector of low-knowledge-intensive market services was mainly responsible for the decline in the labour share experienced by the Japanese economy in the four decades considered. This was related to technological change and, more importantly, to labour market factors - such as the role of unions and a high substitutability of regular with non-regular workers - and product market structural features. These drivers could have significantly contributed to reducing the bargaining power of labour vis-à-vis employers and, consequently, the labour share.

Suggested Citation

  • Fukao, Kyoji & Perugini, Cristiano, 2018. "The Long-Run Dynamics of the Labour Share in Japan," Discussion Paper Series 672, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:672
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    Cited by:

    1. Paul, Saumik, 2019. "Labor Income Share Dynamics with Variable Elasticity of Substitution," IZA Discussion Papers 12418, Institute of Labor Economics (IZA).
    2. Kyoji Fukao & Koji Ito & Cristiano Perugini, 2019. "A Microeconomic Analysis of the Declining Labor Share in Japan," ADB Institute Series on Development Economics, in: Gary Fields & Saumik Paul (ed.), Labor Income Share in Asia, chapter 0, pages 247-267, Springer.
    3. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2020. "Labour Market Institutions, Technology and Rent Sharing," IZA Discussion Papers 13155, Institute of Labor Economics (IZA).
    4. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).
    5. Paul, Saumik, 2019. "A Skeptical Note on the Role of Constant Elasticity of Substitution in Labor Income Share Dynamics," ADBI Working Papers 944, Asian Development Bank Institute.

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    Keywords

    labour share; non-regular work; markup; Japan;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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