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# Work and Pay in the United States and Japan

By: Clair Brown; Yoshifumi Nakata et al. | Book details

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Page 189

APPENDIX: ESTIMATION OF MONEY WAGE CHANGES IN JAPAN, 1965-1993

Wage Equation Estimates

Our wage equations are based on the wage equation found in the Annex of the OECD Economic Survey: Japan ( OECD, 1990). This wage equation is specified as a short-run Phillip's curve, with wage growth as the dependent variable.

Equation 6.1: WageG = a0 + a1Jo/a + a2P + a3Prod + a4ToT

or, alternatively

Equation 6.2: WageG = a0 + a1UR + a2P + a3Prod + a4ToT

where,

WageG = annual growth rate of nominal wages (all industries)

UR = the actual rate of unemployment

Jo/a = ratio of job openings to applications

P = annual rate of growth of consumer prices, average of the current and previous period

Prod = annual rate of productivity growth (GNP/Total Employment)

ToT = terms-of-trade indicator, defined as the CPI growth rate minus the GNP deflator growth rate

Ordinary least squares estimates over the period 1965:2 to 1993:2 yielded the following results.

Period Constant UR Jo/a P Prod ToT R2
Equation 1 65:2-93:2 -1.02 1.69 1.04 0.36 -0.81 .855
(-1.37) (2.05) (11.82) (5.66) (-3.88)
Equation 2 65:2-93:2 5.46 -1.98 1.04 0.25 -0.93 .864
(3.29) (-3.33) (12.13) (3.36) (-4.54)
Note: t-statistics in parenthesis.

Residual Analysis
Time Period Sum of Residuals Number of
Positive Residuals
Number of
Negative Residuals
Equation 1 65:2-75:1 36.889 29 11
75:2-93:2 -36.889 24 49
Equation 2 65:2-75:1 20.367 25 15
75:2-93:2 -20.367 29 44
Source: Bank of Japan (monthly, 1965-1996); International Monetary Fund ( 1996); Mitsubishi Economic Research
Institute (monthly, 1965-D).

-189-

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