Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate

Sachiko Kuroda and Isamu Yamamoto

Monetary and Economic Studies, 2005, vol. 23, issue 2, 1-29

Abstract: In this paper, we investigate the existence and persistence of downward nominal wage rigidity (DNWR) for full-time employees based on the wage fluctuations observed in Japan following the bursting of the bubble economy of the early 1990s. We also examine the extent to which DNWR has boosted firms' real payroll adjusted for labor productivity. We then estimate a version of the Phillips curve with DNWR to measure the impact of DNWR on Japan's unemployment rate. We summarize the results of this paper as follows. First, DNWR measured by the total annual earnings of full-time employees in Japan was observed from 1992 to 1997, but disappeared after 1998. Second, DNWR observed from 1992 to 1997 seemed to have raised firms' real payroll adjusted for labor productivity during a period in which both inflation and labor productivity growth were low. Third, our estimation results suggest that DNWR from 1992 to 1997 raised the unemployment rate by approximately 1 percentage point at the most, although it may overstate the effect of DNWR on unemployment.

JEL-codes: E24 E32 J31 J33 R23 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (23)

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