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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 28, No. 1, pp.53-84
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2015
Received 16 Oct 2014 Revised 26 Jan 2015 Accepted 28 Jan 2015

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

Naomi Kodama ; Tomohiko Inui ; Hyeog Ug Kwon
Associate Professor, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8603, Japan, Tel: 81-42-580-8365, Fax: 42-580-8333 kodaman@ier.hit-u.ac.jp
Professor, Gakushuin University, Tel: 81-3-3986-0221, Fax: 3-5992-9252 tomohiko.inui@gakushuin.ac.jp
Professor, Nihon University, Tel: 81-3-3219-3471, Fax: 3-3219-3471 kwon.hyeogug@nihon-u.ac.jp

JEL Classification: J31, E24, E32, L80

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

Acknowledgments

We are grateful to participants of the RIETI DP seminar and the seminar at Hitotsubashi University for helpful discussions on this paper, especially Ryo Kambayashi for his detailed comments. This study was conducted as a part of the project sponsored by the Research Institute of Economy, Trade and Industry (RIETI). We also gratefully acknowledge support from a Grant-in-Aid for Scientific Research (Grant No. 22330092) from the Japan Society for the Promotion of Science (JSPS). Needless to say, all remaining errors are our own.

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