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Licensed Unlicensed Requires Authentication Published by De Gruyter Oldenbourg July 29, 2019

Real Wage Effects of Japan’s Monetary Policy

Sophia Latsos
From the journal ORDO

Abstract

This paper examines real wage effects of monetary policy in Japan, particularly during the past two decades of monetary easing. The literature generally attributes real wage trends to structural factors that influence the nominal wage components, such as the disappearance of downward nominal wage rigidity. The contribution of this paper is twofold. First, it offers a theoretical framework for the transmission of monetary policy shocks to real wages, emphasizing the responsiveness of labor productivity growth to monetary expansion. Secondly, it alludes to the significance of real wage effects of monetary policy for optimal policy design.

JEL-Classification: E520; E580; E240

Note

The author thanks Wissenschaftsförderung der Sparkassen-Finanzgruppe e.V. for external funding as well as Mamoru Nagano, Eiji Ogawa, Gunther Schnabl, Franz Waldenberger, Naoyuki Yoshino, and participants at the SOAS (University of London) Workshop on Economic Stagnation and Deflation: Challenges for Japan in Comparative Perspective for valuable comments.


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Appendix: Japanese wage data and its sources

The OECD and Cabinet Office (CAO) only provide aggregate wage measures, showing compensation per employee and compensation per hour. Measures on hours worked are limited to hours worked by an “average” employee (OECD) and overtime (non-scheduled) hours worked (CAO). Moreover, both data sources do not distinguish between employment types (i. e. non-regular and regular employment).

The Ministry of Health, Labour and Welfare (MHLW) and the Ministry of Internal Affairs and Communication (MIC) provide more detailed measures on earnings. While the MIC provides detailed data such as wages of various employment types, age groups and the two genders, the MHLW provides a break-down of wages into scheduled and non-scheduled components (for regular employees). Yet, a sufficiently long and consistent time series is only available for earnings and earnings components of regular employees and part-time regular employees as provided by the MHLW.

Importantly, MHLW and MIC use different definitions of employment types so that their respective numbers of regular employees do not correspond to each other. However, the MIC’s definition, which includes part-time workers, temporary workers (“Arbeit”), dispatched workers (from temporary labor agencies), entrusted employees, and contract employees, is a relatively accurate description of non-regular employment in Japan. It is thus sensible to use this data set (starting in 1984, including breaks, quarterly data since 2002) for analysis.

Accordingly, as part-time workers would fall under non-regular employment, it is common to use the MHLW’s data on wages of full-time and part-time regular employees as proxy for depicting wage differentials between regular and non-regular employees. Regardless, it is doubtful that this proxy would be sufficiently accurate as the discrepancy between the measures provided by the proxy and the MIC is very high (according to the proxy, there are about 80 % regular employees, while according to the MIC there are only about 60 % of them).

The MHLW also provides extensive data on hours worked, including data divided by the size of firms (according to the number of employees), industry type as well as type of hours worked (i. e. scheduled or overtime). However, these data only apply to regular employees.

The MHLW also provides the results of the annual negotiated wage increases (shunto). The so-called shunto wages are negotiated for regular workers in large firms and serve as benchmark for non-regular workers and SMEs. Yet, shunto scheduled wages overstate aggregate trends since they include overall and annual seniority increases. Provided the demographic structure of a firm is unchanged, payment for seniority does not change aggregate compensation. Additionally, shunto increases only change aggregate compensation per regular employee. Thus, the aggregate effect for all workers will be more marginal the larger the share of non-regular employment.

Published Online: 2019-07-29
Published in Print: 2019-07-22

© 2019 Walter de Gruyter GmbH, Berlin/Boston