The Labor Market: An Empirical Overview

Alessandro Muolo () and Luca Salvati ()
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Alessandro Muolo: Gran Sasso Science Institute
Luca Salvati: Sapienza University of Rome

Chapter Chapter 3 in Urban-Rural Labour Markets, 2026, pp 35-47 from Springer

Abstract: Abstract This chapter analyzes labor market efficiency in selected world’s major economies, namely, the United States and Japan, among others. In the United States, the labor market has shown complex dynamics in recent decades. The labor force participation rate grew significantly until the 1990s, mainly due to women’s entry into the labor market. Between 1975 and 1996, female participation increased by 13%, reaching almost 60%. However, since the early 2000s, this rate has been declining thanks to specific demographic factors such as the retirement of baby boomers and increased school enrollment among the youth. Another crucial indicator is the unemployment rate, which has shown significant variations over time. During the 2006–2007 economic expansion, the unemployment rate was low, while increasing drastically with the outbreak of the financial crisis, and it took several years to return to pre-crisis levels. The Covid-19 pandemic caused a new peak, followed by a rapid decline due to expansive policy measures. A detailed analysis of Total Factor Productivity (TFP) highlights how it has had a positive impact on both employment and wages. Productivity showed significant growth, particularly in the manufacturing sector, which saw increased productivity despite a decline in employment. However, market frictions have not always allowed a close relationship between productivity growth and wages. This has led to a polarization in earnings and thus greater social inequality. The Japanese labor market followed a different path, since labor force participation rate remained consistently high compared with the United States, except for the time period between 1985 and 2005. Participation has rapidly grown in recent years, again surpassing that of the United States. However, since the 1990s, Japan has faced one of the worst economic crises since the end of World War II, with a significant increase in unemployment that peaked at 5.4% in 2002. Japanese productivity experienced a significant slowdown, associated with the reduction in weekly working hours and demographic aging. This had negative effects on economic growth and private investment. Despite (albeit limited) productivity growth, real wages did not increase proportionately. Moreover, deflation aggravated the situation, reducing trade and contributing to the decline in the share of product allocated to labor. Particular difficulties emerged in the agricultural and mining sectors.

Keywords: Unemployment; Activity rate; Deflation; Economic downturns; Exogenous crisis (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-032-17592-2_3

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DOI: 10.1007/978-3-032-17592-2_3

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