Why Do Real Wages Stagnate in Japan and Korea?

Author Name Hyunbae CHUN (Sogang University) / FUKAO Kyoji (Faculty Fellow, RIETI) / KWON Hyeog Ug (Faculty Fellow, RIETI) / Jungsoo PARK (Sogang University)
Creation Date/NO. February 2021 21-E-010
Research Project East Asian Industrial Productivity
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This study investigates the reasons behind the slowdown in real wages for Japan and Korea based on the aggregate and industry-level data for the respective countries. The findings suggest the following. First, both at aggregate and at industry-level, there is a significant slowdown in both countries in the post-1995 period regarding labor productivity, which explains the overall slowdown in real wages. Second, the main reason for the gap between the growths in real wages and labor productivity is found to be the changes in the labor's terms of trade which is defined as the CPI to GDP deflator ratio. Thus, the wage-labor productivity gap is not systematically connected to changes in labor shares. Finally, to some extent, the overestimation of labor's terms of trade is overstating the slowdown in real wages, especially in Japan.

Published: Chun, Hyunbae, Kyoji Fukao, Hyeog Ug Kwon, and Jungsoo Park, 2024. "Why do real wages stagnate in Japan and Korea?" Asian Economic Papers, Volume 23, Issue 1 (2023), 116–139.