Academic journal article Contemporary Economic Policy

The Impact of the Minimum Wage on Female Employment in Japan

Academic journal article Contemporary Economic Policy

The Impact of the Minimum Wage on Female Employment in Japan

Article excerpt

I. INTRODUCTION

This article estimates the effect of the minimum wage on employment among middle-aged women in Japan. Japan's minimum wage has been set at a low level compared with its average wage for a long time. For example, the ratio of the minimum wage to full-time median earnings (including overtime pay and bonuses) in mid-1997 was 0.31 in Japan, whereas it was 0.57 in France, 0.49 in the Netherlands, 0.46 in New Zealand, 0.40 in Canada, 0.38 in the United States, and 0.32 in Spain (table 2.3 in OECD 1998). This low level of the effective minimum wage has discouraged researchers' interest, and there has been virtually no research directly examining the minimum wage's effect on employment in Japan. However, one should doubt the effect of the minimum wage on the employment of middle-aged female workers, particularly in rural areas, because of the following reasons. First, the male-female wage gap in Japan is larger than it is in other developed countries. Second, although wage distributions are heterogeneous across Japan's prefectures, the regional minimum wage is not very heterogeneous, for egalitarian purposes. Third, current ongoing deflation and its associated nominal wage decline presumably make the minimum wage more likely to bind. These economic conditions and the institution of minimum wage setting in Japan may cause the minimum wage to have a more serious bite for subgroups of workers in certain regions. Neumark and Wascher (2004), for example, emphasized the importance of examining the institution of minimum wage setting for each country, in addition to looking at the national measure of the minimum wage. This research attempts to enact their suggestion.

The disemployment effect of the minimum wage has been widely examined in North American and European countries. Early studies attempted to identify the disemployment effect using time-series data. However, since the late 1980s, U.S. researchers have used cross-state variations of the minimum wage to identify its disemployment effect. The usage of time-series data became unpopular because it is difficult to disentangle the effect of the minimum wage from the effect of macro shocks that can be correlated with revisions in the minimum wage level. More credit has been given to the results based on state-level panel data, which principally have applied a difference-in-difference (DID) approach to identify the minimum wage's disemployment effect. In these studies, the state that changed the minimum wage was classified as the treatment group and the other states, whose minimum wages were unchanged, were classified as the control group. A famous example of research that applied DID to identify the disemployment effect was Card and Krueger (1994), and another famous example that used all 50 states was Neumark and Wascher (1992). As indicated by Card and Krueger (2000) and Neumark and Wascher (2000), there has been heated controversy regarding the existence of a disemployment effect of the minimum wage in the United States, and the authors believe it is still fair to say that a definitive conclusion has not been reached.

Although U.S. researchers have exploited the existence of state variations in the minimum wage to identify its effect on employment, European researchers have struggled to define appropriate treatment and control groups because European countries tend to have uniform, nationwide minimum wage systems. A recent study by Machin et al. (2003) examined the effect of the newly introduced statutory national minimum wage on employment in a low-wage industry, the residential care homes industry. They used the initial average wage of the homes' workers to define the control and treatment groups. The workers in homes whose average wage was originally below the newly adopted minimum wage were classified as the treatment group, and those in homes whose initial average wage was above the minimum were classified as the control group. These researchers found a moderate disemployment effect. …

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