Dual labor market and the “Phillips curve puzzle”: the Japanese experience

Hideaki Aoyama, Corrado Guilmi (), Yoshi Fujiwara and Hiroshi Yoshikawa
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Hideaki Aoyama: Interdisciplinary Theoretical and Mathematical Sciences Program (iTHEMS)
Corrado Guilmi: University of Technology Sydney
Yoshi Fujiwara: University of Hyogo
Hiroshi Yoshikawa: The University of Tokyo

Journal of Evolutionary Economics, 2022, vol. 32, issue 5, No 2, 1419-1435

Abstract: Abstract Low inflation was once welcomed by both policymakers and the public. However, Japan’s experience during the 1990s changed the consensus of economists and central banks around the world regarding prices. Facing deflation and the zero-interest bound at the same time, the Bank of Japan had difficulty conducting an effective monetary policy, making Japan’s stagnation unusually prolonged. The too-low inflation that concerns central banks today translates into the “Phillips curve puzzle.” In the United States and Japan, in the course of the recovery from the Great Recession after the 2008 Global Financial Crisis, the unemployment rate had steadily declined to a level commonly regarded as lower than the natural rate or NAIRU. However, inflation remained low. In this paper, we consider a minimal model of the dual labor market to jointly investigate how the different factors affecting the structural evolution of the labor market have contributed to the observed flattening of the Phillips curve. We find that the level of bargaining power of workers, elasticity of the supply of labor to wage in the secondary market, and composition of the workforce are the main factors jointly explaining the evidence for Japan.

Keywords: Phillips curve; Bargaining power; Secondary workers (search for similar items in EconPapers)
JEL-codes: C60 E31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00191-022-00781-8

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