TFP Growth Slowdown and the Japanese Labor Market in the 1990s

Author Name Julen ESTEBAN-PRETEL (the University of Tokyo) / NAKAJIMA Ryo (University of Tsukuba) / TANAKA Ryuichi (Tokyo Institute of Technology)
Creation Date/NO. January 2009 09-E-003
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Unemployment in Japan nearly tripled during the 1990s. Underlying this upsurge lie an increase in the probability of workers to lose their jobs and a decrease in the probability that the unemployed find jobs. This paper analyzes the sources responsible for these labor market changes in Japan in the decade of the 1990s. We build, calibrate and simulate a neo-classical growth model with search frictions in the labor market. Using actual TFP data, the model is able to reproduce the path of unemployment and the job flows, as well as that of output. We find it to be the decrease in productivity, coupled with the reduction in hours worked, which curtails the profits of firms, inducing a drop in employment and an increase in unemployment.

Published: Julen Esteban-Pretel, Ryo Nakajima and Ryuichi Tanaka, 2010. "TFP growth slowdown and the Japanese labor market in the 1990s," Journal of the Japanese and International Economies, Vol. 24(1), pp. 50-68