Technical Report The Long-Run Dynamics of the Labour Share in Japan

Fukao, Kyoji  ,  Perugini, Cristiano

2018-03 , Institute of Economic Research, Hitotsubashi University
In this paper we investigate the long-term drivers of the share of output accruing to labour in Japan. We contribute to this strand of literature by extending the theoretical SK schedule model proposed by Bentotila and Saint-Paul (2003) to multiple inputs and by providing new empirical evidence on Japan at detailed sector-level over the period 1970–2012. The econometric analysis is carried out by means of an error correction model (ECM) that allows testing the existence of long-run relationships while accounting for cross-sectional heterogeneities and dependence. Results indicate that the macro-sector of low-knowledge-intensive market services was mainly responsible for the decline in the labour share experienced by the Japanese economy in the four decades considered. This was related to technological change and, more importantly, to labour market factors - such as the role of unions and a high substitutability of regular with non-regular workers - and product market structural features. These drivers could have significantly contributed to reducing the bargaining power of labour vis-à-vis employers and, consequently, the labour share.

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