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What caused the downward trend in Japan’s labor share?

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  • Higo, Masahiro

Abstract

Measuring the labor share is not an easy task. Labor share movements often vary depending on both their definition and the measurement scope. This study estimates the labor share in Japan based on two representative government statistical sources—the National Accounts and the “Financial Statements Statistics of Corporations by Industry” —with their differences in coverage and accounting standards corrected. We confirmed a clear downward trend in Japan’s labor share since the 1990 s, both in the total Japanese economy and in the corporate sector. The driving force behind the labor share decline is the significant decrease in the income of the self-employed (mixed income) and in the salaries and bonuses awarded to executives who are owners of small- and medium-sized enterprises (SMEs). This decrease is attributed to the decline in the number of self-employed individuals and SMEs. By contrast, salaries and bonuses to employees hardly contributed to the decline. These findings suggest that the straightforward narrative that—technological progress, globalization such as the transfer of production overseas, and the expansion of non-regular employment have reduced labor income to employees, thus resulting in a lower labor share—does not directly apply to the Japanese economy. Understanding the mechanism of the decline in Japan’s labor share requires identifying the causes and effects of the decline in the numbers of self-employed individuals and SMEs.

Suggested Citation

  • Higo, Masahiro, 2023. "What caused the downward trend in Japan’s labor share?," Japan and the World Economy, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:japwor:v:67:y:2023:i:c:s0922142523000324
    DOI: 10.1016/j.japwor.2023.101206
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor share; Self-employed; Small- and medium-sized enterprises; Mixed income; Salaries and bonuses to corporate executives; Tax incentive;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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