May 2010

IZA DP No. 4949: The Minimum Wage in a Deflationary Economy: The Japanese Experience, 1994-2003

published in: Labour Economics, 2013, 24, 264-276

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.