🤖 AI Summary
This study investigates the causes of Japan’s prolonged stagnation in average wages since the mid-1990s. Leveraging data from 1980 to 2024, it innovatively combines an extended Olley-Pakes decomposition with multidimensional shift-share analysis to decompose real hourly wage growth into four components: demographic changes, employment reallocation across jobs, inter-job relative wage shifts, and within-job wage growth, while distinguishing between employment reallocation and wage structure effects. The findings reveal that all components contributed negatively during 1996–2014: although within-job wages continued to rise, this increase was substantially offset by multidimensional employment shifts—particularly population aging and the expansion of non-regular employment—demonstrating that wage stagnation stems from structural forces rather than any single factor.
📝 Abstract
Average wages in Japan rose until the mid-1990s but stagnated thereafter. This paper studies Japan's long-run wage stagnation by decomposing changes in average log real hourly wages from 1980 to 2024 into four components: demographic change across worker types, changes in relative employment shares across job types, changes in relative wages across job types, and wage growth within job types. The framework combines a shift-share decomposition across worker types with an extension of the Olley-Pakes decomposition that separates employment reallocation from changes in relative wages across job types. Wage growth within job types contributes positively over the full sample period, but demographic change and employment reallocation partly offset it. Between 1996 and 2014, all four components are negative. The negative contribution from employment reallocation is not limited to the expansion of part-time employment, but reflects broader shifts across job types defined by employment type, establishment size, and industry.