Effects of Demographic Change on Labor Market and Wage Developments

Shuichiro Ikeda, Ushio Kawano, Yoshibumi Makabe, Kohei Takata and Tomoyuki Yagi
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Shuichiro Ikeda: Bank of Japan
Ushio Kawano: Bank of Japan
Yoshibumi Makabe: Bank of Japan
Kohei Takata: Bank of Japan
Tomoyuki Yagi: Bank of Japan

No 25-E-2, Bank of Japan Review Series from Bank of Japan

Abstract: Considering Japan's demographic outlook, labor supply is not likely to increase significantly and labor shortages are highly likely to continue in the future. This article examines the effects of such labor shortages on labor market and wage developments. In Japan's labor market, there are obstacles to a wage increase such as low labor mobility and the different wage-setting mechanisms used according to type of employment -- the so-called dual structure. As the degree of labor shortage increases, signs of change in the situation have begun to emerge. Empirical results of this article suggest that, labor mobility is beginning to improve due to the expansion of job changes. A mechanism which enables wages to rise in tandem across markets -- where wages had previously been decided according to different systems -- has begun to yield results, as seen by increases in part-time employees' wages exerting upward pressure on full-time employees' wages. It is probable that these kinds of changes will continue and firms' wage-setting behavior will become more proactive.

Keywords: Labor shortage; Dual labor market structure; Wage; Labor mobility (search for similar items in EconPapers)
JEL-codes: J20 J30 J42 J62 (search for similar items in EconPapers)
Date: 2025-03-06
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