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Is Downward Wage Flexibility the Primary Factor of J apan's Prolonged Deflation?
Author(s) -
Kuroda Sachiko,
Yamamoto Isamu
Publication year - 2014
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/aepr.12056
Subject(s) - deflation , economics , wage , unemployment , flexibility (engineering) , macro , wage growth , rigidity (electromagnetism) , labour economics , keynesian economics , macroeconomics , monetary policy , management , structural engineering , computer science , engineering , programming language
By using both macro‐ and micro‐level data, this paper investigates how wages and prices evolved during J apan's lost two decades. We find that downward nominal wage rigidity was present in J apan until the late 1990s, but disappeared after 1998 as annual wages became downwardly flexible. Moreover, nominal wage flexibility may have contributed to J apan'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 J apan's prolonged deflation.