Unemployment in Japan: A look at the ‘lost decade’

Pablo Agnese and Hector Sala

MPRA Paper from University Library of Munich, Germany

Abstract: The ‘lost decade’ in Japan was a period of steep surge in unemployment. It started in 1991 with the unemployment rate at 2.1%, and ended in 2002 when it reached a historical maximum of 5.5%. To assess the main causes of this rise we take a macroeconomic perspective and estimate a reduced-form unemployment model. This model, containing a rich set of variables, yields an interesting picture. The fall of private investment played the main role, while private consumption and the boost in government spending partially offset this recessive effect. In turn, the initial rise in participation rates and the East Asian crisis after 1997 added new burdens to the labor market. We conclude that a crucial issue in the medium-run is to avoid the consequences of the prolonged decline in investment in terms of reduced productivity growth and a weaker international trade performance.

Keywords: Unemployment; reduced-form models; investment; economic policy; East Asian crisis (search for similar items in EconPapers)
JEL-codes: E24 F16 J01 (search for similar items in EconPapers)
Date: 2008-09-02
New Economics Papers: this item is included in nep-lab
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Published in Asia Pacific Journal of Economics and Business 1.12(2008): pp. 16-35

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