18/05/2007

Assessing the Insufficient Employment Sentiment in Light of Labor Share Trends

Economic Research Department Executive Research Fellow Taro Saito 

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Excessive employment, which plagued the post-bubble economy for a decade, has finally ended. Today, sentiment is mounting toward insufficient employment. This trend is consistent with the plunge of labor’s share below the long-term equilibrium level suggested by labor productivity and real wages. At small enterprises, however, the labor share still remains stubbornly high. While the retirement of baby boomers is expected to drive down labor cost, two factors will mitigate the decrease: the continued employment of elderly workers, and rising average wage as workers become more educated. Large enterprises can afford to raise employment and wages. But small enterprises could become vulnerable to excessive employment again if the labor share rises further.

Economic Research Department   Executive Research Fellow

Taro Saito

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