Price and Nominal Wage Phillips Curves and the Dynamics of Distribution in Japan

This study estimates two types of Phillips curves––the price Phillips curve and nominal wage Phillips curve––for the Japanese economy and analyses the institutional structure of the dynamics of effective demand and income distribution in each period from 1977 to 2007. The estimated results allow us to make the following four findings. First, the Japanese economy was a profit-led regime and a counter-cyclical wage share regime until the 1990s. Second, although the combination of regimes can make the dynamics of effective demand and income distribution unstable, such dynamics were actually stable until the 1980s because wage share was sufficiently regulated by labour–management cooperation. Third, however, during the 1990s, the dynamics became unstable, because this regulation mechanism was weakened by a proportional increase in non-regular workers who were not members of labour unions. Finally, after the 2000s, the dynamics restabilized because Japanese firms quickened their speeds of employment adjustment and the distributive regime in Japan switched from a counter-cyclical wage share one to a pro-cyclical wage share regime.