Economic Analysis Series No.195

October, 2017
Changes in Japan’s Labor Market and the Labor Income Share,Wage Inequality, and Working Hours
Special Editor Yoshio HIGUCHI
Declining Labor Share and Corporate Finance
Masahiro ABE
Business Cycle and Wage Inequality in Japan
Economics of Income Inequality and Educational Investment
Ryuichi TANAKA
The Effect of Commuting Time on Married Couples’ Time Use
An Empirical Study on Migration to Tokyo by the Young
Souichi OHTA


Declining Labor Share and Corporate Finance

Masahiro ABE, Jess DIAMOND

Although fluctuations in the labor share of income over the business cycle are a natural feature of the economy, a long-run decline requires a deeper explanation. Mirroring a long-term trend observed across the world, the labor share of income in Japan has been declining since the early 2000s. Sluggish wage growth and an increase in dividends and retained earnings suggest that this decline reflects a change in the distribution of firms’ value added. In this paper we examine whether a declining labor share has been accompanied by increased retained earnings. In particular, we analyze the relationship between firms’ employment levels and per capita labor costs on the one hand and their financing behavior on the other. Our results show that firms with a main bank relationship have been increasing precautionary savings at the same time as they have increased employment. On the other hand, firms without a main bank have been accumulating excess cash on their balance sheets regardless of whether they have been increasing or decreasing their employment levels. These observations have been contributing to a decline in the labor share of income.

JEL Classification Codes:G3, J4
Keywords:the labor share of income, financing behavior, main bank relationship

Business Cycle and Wage Inequality in Japan


Using the Basic Survey on Wage Structure from 1989 to 2013, we examine the relationship between business cycle and inequality of employees’ wage: For the wage index, we use real annual earnings deflated by consumer price index. While Gini coefficient and Coefficient of Variation (CV) of real wage among all employed workers increased throughout the period, the relationship between business cycle and wage inequality in 1990s did not show a strong trend. In contrast, during 2000s, wage inequality seems to have become rather more pro-cyclical in booms than in recessions, although inequality tends to increase regardless of business cycle. After 2010, Gini coefficient and CV remain at a high level. According to Gini coefficient and CV of male full-time workers, who are unlikely to repeat entry and exit into labor market so often, wage gap decreased until mid-1990s, gradually increased from mid-1990s to 2008, and again has been shrinking after 2008.

The influence booms and recessions have on overtime allowances is asymmetric: the magnitude of drops in overtime allowances during recessions is larger than that of increase in overtime allowances during booms. Exploiting the change in employment structure in 1997, we analyze how the relationship between business cycles and overtime has changed during 1990s and 2000s. Our results reveal that overtime became less responsive to unemployment rate in all quantiles of annual earnings after 1997. The change of labor market structure in 1997 enabled firms to adjust employment more easily. Consequently, firms have come to handle fluctuations in labor demand by changing employment rather than overtime after the structural change, and this trend is strong especially among lower wage quantiles. Overtime adjustment used to play a role of absorption of business fluctuations in 1990s, but after 1997, the role has been replaced by employment.

JEL Classification Codes: D31, J31, J81
Keywords: Business Cycle, Wage, Inequality

Economics of Income Inequality and Educational Investment

Ryuichi TANAKA

This paper examines the effects of current income inequality on future economic growth and income inequality focusing on educational investment as a mechanism generating intergenerational income persistency. After reviewing empirical studies on the relationship between income inequality and economic growth, we review theoretical models of educational investment and intergenerational income dynamics with special focus on imperfect capital market. We review the models with private schools and public schools whose quality and quantity are determined by political process. Finally we try to draw some policy implications for Japan.

JEL Classification Codes:D31, D72, H42, I22, O15
Keywords:Educational Investment, Income Inequality, Economic Growth

The Effect of Commuting Time on Married Couples’ Time Use


This paper analyzes the effects of changes in commuting time on the market and household labor supply of wives and their husbands. We use the Japanese Panel Survey of Consumers (JPSC), conducted by the Institute for Research on Household Economics, for the period 1994–2015. This is a unique panel survey compiling the daily time allocation of both wives and husbands. In addition, it includes information on work circumstances, which are important to estimate market labor hours, and on household characteristics and the number of family members, which are essential to consider the decision on housework. The panel dataset enables us to control for unobserved heterogeneity of individuals and households and clarify the causal impact of commuting time on time allocation within the family. The results of the analysis on dual income households show that an increase in own commuting time raises the market labor hours and decreases the housework hours both for a wife and the husband. In addition, an increase in one spouse’s commuting time decreases the spouse’s own market labor hours and increases their housework hours. Further estimation shows that wives’ market labor hours react to their own and their spouse’s commuting time more than their own housework hours, and that husbands’ market labor hours react to their own and their spouse’s commuting time more than wives’ market labor hours. This responsiveness in husbands’ time allocation is a recent phenomenon in Japanese families which was not observed in the 1990s.

JEL Classification Codes: D13, J22, R41
Keywords: household production, time allocation within the household, market labor time, household production time, commuting time

An Empirical Study on Migration to Tokyo by the Young

Souichi OHTA, Kenji UMETANI, Miyuki KITAJIMA, Daichi SUZUKI

This paper investigates the reasons why young people migrate from local regions to Tokyo at important stages in their life such as when entering university or starting a job. Using probit model estimations with a large nationwide microdata set consisting of individuals of both sexes born between 1966 and 1995, this is the first study in Japan to examine internal migration by the young in an empirically rigorous manner. We obtain the following three results. First, higher educational attainment was associated with a higher propensity to migrate to Tokyo, while a weaker propensity to migrate was found for younger cohorts than older ones. Second, lower wages in the prefecture of origin relative to those in Tokyo were a key determinant of migration to Tokyo at the stage of starting a job. However, focusing only on those that had already enrolled in a university in Tokyo, we found that the choice to remain and obtain a job in Tokyo was attributable to poor job opportunities in local regions. In contrast, for those who had had their first job in a local region but subsequently lived to work in Tokyo, wage differences and poor local employment chances did not show any statistical significance. Third, women had a weaker propensity, relative to men, to move to Tokyo at the first job stage, but after that they had a stronger propensity to migrate from local regions to Tokyo. The findings imply that policies to redress the unipolar concentration on Tokyo would need to reduce the disparity in wages and job opportunities between Tokyo and local regions at the stage when individuals start a job, and to ensure that investment by the young in their human capital is fully rewarded in local regions.

JEL Classification Codes: R23, J61, J11
Keywords: internal migration, Tokyo concentration, choice of residence

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