Comment on “the Normalization of Wage Dynamics”

Hoshi and Kashyap (2025) examine wage dynamics in Japan from 1981 to 2023. They demonstrate that wage inflation for full-time workers became less responsive to the unemployment rate between 1998 and 2018. Then, after 2019, full-time wages began to respond to labor market conditions again. Hoshi and Kashyap (2025) attribute the earlier stagnation to Japanese corporations hoarding excess full-time workers after the banking crisis, which suppressed wage growth for these workers. Meanwhile, companies increasingly relied on part-time workers, whose lower wages exerted downward pressure on average wages. Hoshi and Kashyap (2025) refer to Genda (2017), an influential book in which prominent economists address two key questions: (1) Why was there no upward wage pressure during labor shortages in the mid-2010s? and (2) how could an increase in wages be achieved? Now that Hoshi and Kashyap (2025) have documented the fact that wage inflation has become more responsive to the unemployment rate between 2019 and 2023, it is worth revisiting their assessments to evaluate whether the factors that they claim contributed to this wage growth were, in fact, the most significant ones in this context. In his chapter in Genda (2017), Professor Soichi Ohta uses data up to 2015 to highlight both the stagnation of full-time wages and the rise of part-time employment. He demonstrates that the increase in nonregular employment, particularly among elderly workers (the first baby boomers retiring from regular employment), exerted downward pressure on average wages. He also emphasizes that stagnant wages for regular employees were partly due to the second baby-boom generation, whose growth in labor productivity was constrained by the job market recession of 1993 to 2004, which took place during their youth and thus limited their opportunities. Professor Ohta stresses that leveraging the labor productivity of this generation, as well as women of other working-age generations, was key to achieving wage growth. However, during the 2010s, full-time workers' labor productivity does not appear to have improved and is therefore unlikely to have contributed to the rise in full-time wages after the late 2010s. An alternative explanation is the reduction in excess full-time employment, as highlighted in Figure 5 of Hoshi and Kashyap (2025). However, since excess full-time employment had been low already since 2013, this seems to be only a weak explanation for why full-time wages began to respond to the unemployment rate. Professor Ayako Kondo (also in Genda (2017)) highlights wage-setting mechanisms in Japan's healthcare sector, noting that government-regulated fees for nursing care and other services kept healthcare wages low, preventing market forces from raising them. This point is also emphasized in the chapter by Professor Etsuro Shioji; he provides evidence that an influx of workers from the manufacturing sector into the healthcare service sector did not experience any significant decrease in wages, suggesting that wages in the healthcare sector are rigid. However, due to government-implemented improvements in care workers' conditions, wages in the healthcare sector have risen since the late 2010s, and workers in this sector are now employed not only in part-time but also in full-time positions. These two chapters about the healthcare service sector also connect with the chapter by Professors Daiji Kawaguchi and Hiromi Hara in Genda (2017), who analyze the rise of nonregular employment. They observe that while the share of part-time workers increased between 2000 and 2010, wages for this group did not rise because the labor supply of nonregular employees was elastic. As a result, wage increases were limited despite shifts in labor demand. Professors Kawaguchi and Hara predict that as the labor market for nonregular employees became less elastic, wage growth would follow—which is what we are now witnessing. For regular employees, they emphasize the need for job training opportunities to support wage growth. While many economists represented in Genda (2017) report stagnant part-time wages during the 2010s, Hoshi and Kashyap (2025) find that part-time wages were increasing, albeit still remaining low. This increase could potentially be traced to an increase in the minimum wage during this period. Similarly, recent government-led annual spring wage-increase negotiations—shunto—have also been pressuring companies to raise wages in recent years. However, if the rise in wages was indeed linked to increases in the minimum wage or shunto, this raises the important question as to whether these increases were causing distortions in the labor market, or, as Professor Kondo points out, whether the government-regulated healthcare sector has been suppressing the wages of workers. Ultimately, Hoshi and Kashyap (2025) have not provided us with a definitive answer to this key question: Why did labor market dynamics shift in the late 2010s, leading to wage responsiveness for both full-time and part-time workers? It is indisputable that the Japanese labor market underwent significant changes in various dimensions during that period, but what the major driving factors were is a question that will require future research. The author gratefully acknowledges the valuable feedback provided by Yuko Ueno.