The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994|2003

The median wage in Japan has fallen nominally since 1999 due to a severe recession, while the statutory minimum wage has steadily increased over the same period. We used large micro-data sets from two government surveys to investigate how the minimum wage has affected wage distribution under the unusual circumstances of deflation. The compression of the lower tail of female wage distribution was almost completely explained by the increased real value of the minimum wage. The steady increases in the effective minimum wage reduced employment among low-skilled, young and middle-aged female workers, but the mechanical effect associated with disemployment on wage compression was minimal. These results held even after controlling for composition effects. The minimum wage contributed to the reduction in the pay gap between full-time and part-time workers.Minimum Wage, Wage Distribution, Wage Inequality, Employment, Deflation

The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994-2003

The statutory minimum wage has steadily increased for decades in Japan, while the median wage has fallen nominally since 1999 because of a severe recession. We use large micro-data sets from two government surveys to investigate how the minimum wage has affected the wage distribution under unusual circumstances of deflation. The compression of the lower tail of the female wage distribution is largely explained by an increased real value of the minimum wage. Steady increases in the effective minimum wage reduced employment among low-skilled, middle-aged female workers, but the mechanical effect associated with disemployment on wage compression was minimal.minimum wage, wage distribution, wage inequality, employment, deflation