A Decomposition of the Decline in Japanese Nominal Wages in the 1990s and 2000s

Seoul Journal of Economics, Vol. 28, No. 1, pp. 53-84, 2015

32 Pages Posted: 6 Mar 2015

See all articles by Naomi Kodama

Naomi Kodama

Hitotsubashi University

Tomohiko Inui

Gakushuin University

Hyeog Ug Kwon

Nihon University

Date Written: February 28, 2015

Abstract

In the 1990s and the 2000s, the average nominal wage in Japan declined continuously. This is a sharp contrast to wage trends in other developed countries in the same period. This study seeks to provide new quantitative evidence on the possible factors contributing to the nominal wage decline in Japan’s so-called “two lost decades” employing the Blinder-Oaxaca decomposition method using data from the Basic Survey on Wage Structure for 1993-2008. We find that half of the decline of the average wage in the total economy is due to the growing employment share of low-wage industries.

Further, we decompose changes in average wages at the industry level for three subperiods representing different phases of the business cycle in Japan. Controlling for worker characteristics, we find the wages of workers in the manufacturing, wholesale, and medical, health care, and welfare industries declined between 1998 and 2003. Further, our results show that 1997 was the turning point in terms of changes in the wage structure. In addition, we find that wages for workers with the same characteristics continued to decline in the 2000s, albeit at a slower pace, and the main factor responsible for the wage decline was changes in the composition of the workforce in the wholesale, retail, and medical, health care, and welfare industries.

Keywords: Nominal wage decline, Deflation, Changes in industrial structure, Blinder-Oaxaca Decomposition

JEL Classification: J31, E24, E32, L80

Suggested Citation

Kodama, Naomi and Inui, Tomohiko and Kwon, Hyeog Ug, A Decomposition of the Decline in Japanese Nominal Wages in the 1990s and 2000s (February 28, 2015). Seoul Journal of Economics, Vol. 28, No. 1, pp. 53-84, 2015. Available at SSRN: https://ssrn.com/abstract=2574047

Naomi Kodama (Contact Author)

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

Tomohiko Inui

Gakushuin University ( email )

1-5-1 Mejiro
Toshima-ku Tokyo 171-8588
United States

Hyeog Ug Kwon

Nihon University ( email )

Tokyo
Japan

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