Vol.7, No.1 / April 1989

Real Wages and the Japanese Economy

Hiroshi Yoshikawa and Yoshiyuki Takeuchi

This paper analyzes the determinants of real wages in Japan by using panel data. One finding is that the dispersion of sales across industries tends to suppress wage increases in Japan. In addition, a comparison of Japan's prewar and postwar economies presents some evidence suggesting that the flexibility of wages does not necessarily enhance the stability of the real economy. Furthermore, estimations of investment functions reveal that an increase in real wages tends to raise investment. This evidence suggests that for the most part the Japanese economy in the 1970s and 1980s was quantity-constrained in the Keynesian sense.

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