The authors wish to thank Ken Ariga, Ryo Kambayashi, participants at the Seventeenth Asian Economic Policy Review (AEPR) Conference and the Editors of the AEPR for their valuable comments. The remaining errors are solely our own. This research is supported by the Murata Science Foundation.
Is Downward Wage Flexibility the Primary Factor of Japan's Prolonged Deflation?
Article first published online: 9 JAN 2014
© 2014 The Authors. Asian Economic Policy Review © 2014 Japan Center for Economic Research
Asian Economic Policy Review
Volume 9, Issue 1, pages 143–158, January 2014
How to Cite
Kuroda, S. and Yamamoto, I. (2014), Is Downward Wage Flexibility the Primary Factor of Japan's Prolonged Deflation?. Asian Economic Policy Review, 9: 143–158. doi: 10.1111/aepr.12056
- Issue published online: 9 JAN 2014
- Article first published online: 9 JAN 2014
- Murata Science Foundation
- downward nominal wage rigidity;
- Japanese labor market;
- Japan's lost two decades;
- unit labor cost;
By using both macro- and micro-level data, this paper investigates how wages and prices evolved during Japan's lost two decades. We find that downward nominal wage rigidity was present in Japan until the late 1990s, but disappeared after 1998 as annual wages became downwardly flexible. Moreover, nominal wage flexibility may have contributed to Japan's relatively low unemployment rates. Although macro-level movements in nominal wages and prices seemed to be synchronized, such synchronicity is not observed at the industry level. Therefore, wage deflation does not seem to be a primary factor of Japan's prolonged deflation.