Synchronized Wage Determination and Macroeconomic Perfor-mance in Japan

The purpose of the research which I will discuss is to assess the role of the Shunto in achieving wage flexibility and thereby improving macroeconomic performance in Japan.

My previous research (Taylor (1988)) shows that money wages are considerably more flexible in Japan than in the U.S. or than in European countries. This fact along with a monetary policy that responds promtly to inflation is one explanation for the more stable macroeconomic performance in Japan in the last 15 years. An important question is whether the greater flexibility is due to the Shunto system, in which many workers have their wages adjusted in the spring or early summer of each year, or to the bonus system, in which a large component of the wage is paid in the form of an apparantly flexible bonus.

The research attempts of get at this distinction by estimating empirical wage equations for Japan, the U.S. , and other countries in which the degree of synchronization is a factor. Using quarterly wage data for Japan and the other G-7 countries (Canada, France, Germany, Italy, the United Kingdom, and the United States) wage equations are estimated over the period form 1972 through 1986. By comparing these estimated equations it is possible to determine the importance of the Shunto in Japan. The results indicate that the Shunto system does significantly affect the behavior of nominal wages in Japan. Quantitative estimates of the effects are provided. Taylor , John B . (1988) , "Differences in Economic Fluctuations in Japan and the U.S. : The Role of Nominal Rigidities , " Journal of the Japanese and International Economies , forthcoming.