A Microeconomic Analysis of the Declining Labor Share in Japan

Abstract

The labor share in Japan has been declining significantly over the last three decades, accompanied by persistent stagnation and an unprecedented increase in economic inequalities. Since these dynamics are likely to be interrelated, understanding the drivers of the labor share might contribute significantly to the Japanese economic and policy debate. Surprisingly, the existing literature on the labor share in Japan is rather limited and confined to country or industry studies. We first attempt to analyze the drivers of the labor share in Japan at the firm level. To this aim, we employ a panel of manufacturing firms from the Basic Survey of Japanese Business Structure and Activities, spanning from 2001 to 2012. By means of panel data estimators, we show how, besides technological variables, firms' labor share depends significantly on the share of regular workers, on the importance of firms' international engagement, and on various institutional settings of the product and labor markets.

The Long‐Run Dynamics of the Labor Share in Japan

“…The inclusion of the Mark‐up indicator in the model produces interesting consequences on the coefficients of the technological and capital intensity variables. Consistent with ex ante expectations and existing empirical evidence (Barkai, 2019; Azmat et al , 2012; Autor et al, 2017a, 2017b; De Loecker and Eeckhout, 2018; Fukao et al , 2019) we find that higher levels of market power decrease the labor share; we will elaborate more on this outcome later, as it is one of the main findings of our analysis. It is for the moment worth noting that the inclusion of Mark‐up renders the coefficient of TFP insignificant.…”

“…They find that intangible investments related to innovation increase the labor share, while those related to the organization of firms contribute to its decline. At microeconomic level, Perugini et al (2017) find that intangibles raise the income share accruing to workers; Fukao et al (2019) show that expenditures for some types of intangibles (R&D and advertisement) are positively related to the labor share of Japanese manufacturing firms. These types of capital were not considered in our analysis, as JIP data on intangible capital are available only for the second part of our time‐span (from 1985 onwards) and our approach was intended to capture long‐run relations.…”

“…On the contrary, O’Mahony et al (2019a, 2019b) find that ICT capital is the only driver of capital/labor substitution and its negative effect on the labor share differs across sectors. Another stream of the literature focused on tangible/intangible capital, providing mixed results (see Perugini et al , 2017; Fukao et al , 2019; O’Mahony et al , 2019b). As for labor heterogeneity, in view of the specific features of the Japanese labor market, we focus on the duality between standard (or regular) and non‐standard (or non‐regular) employment.…”

Globalization and the labor share in China: Firm‐level evidence

“…The coefficients of FIEs and export value turn to be significantly negative in most specifications, implying that the labor share is lower when a firm gets a foreign investor, and more exports are associated with a lower labor share within the firm (Column (1)). These findings suggest that a firm's labor share declines if a firm engages in international activities, which are at odds with our previous cross‐sectional results, but somewhat consistent with the evidence for Switzerland (Siegenthaler & Stucki, 2015) and Japan (Fukao et al., 2019). However, when looking at export dummy and export intensity, our within‐firm results are robust to the cross‐firm evidence.…”