STAGNANT WAGE AND TEMPORARY WORKERS IN JAPAN

Abstract

The nominal wage in Japan has remained stagnant for more than two decades. The objective of this thesis is to identify the cause of long-lasting wage stagnation in the country and to reveal the mechanisms behind this phenomenon. I simulate wage movement by constructing a simple search and matching model, and I demonstrate that a simulated wage is a good fit to actual wage movement if I incorporate efficiency changes between permanent and temporary workers. These efficiency changes offset 60% of the nominal wage growth that should have been realised if efficiency had been constant. The possible reason for this is that temporary workers assigned more important and difficult tasks, instead of permanent workers, damage the superiority of permanent workers' efficiency and expedite the rapid substitution of permanent jobs with temporary positions, thereby resulting in aggregate wage stagnation.