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Downward Nominal Wage Rigidity in Japan: Is Price Stability Costly?

June 1997
Takeshi Kimura
Kazuo Ueda

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This paper analyzes whether or not Japanese nominal wages are rigid downward. By using time series cross section data on wages from the Japanese Wage Census, we find that wages do not exhibit serious downward rigidity. They do decline when macro labor market conditions worsen even in periods of low inflation rate. Japanese wages per man-hour, however, do not respond to micro shocks. Firms have avoided large employment adjustments in response to micro shocks by changing overtime hours worked. We tentatively conclude that there is no long-run trade off between the goal of stable prices and low unemployment in Japan.