Effects of Demographic Change on Labor Market and Wage Developments

Considering Japan's demographic outlook, labor supply is not likely to increase significantly and labor shortages are highly likely to continue in the future. This article examines the effects of such labor shortages on labor market and wage developments. In Japan's labor market, there are obstacles to a wage increase such as low labor mobility and the different wage-setting mechanisms used according to type of employment -- the so-called dual structure. As the degree of labor shortage increases, signs of change in the situation have begun to emerge. Empirical results of this article suggest that, labor mobility is beginning to improve due to the expansion of job changes. A mechanism which enables wages to rise in tandem across markets -- where wages had previously been decided according to different systems -- has begun to yield results, as seen by increases in part-time employees' wages exerting upward pressure on full-time employees' wages. It is probable that these kinds of changes will continue and firms' wage-setting behavior will become more proactive.