The Lost Decade in the Japanese Labor Market: Labor’s share and Okun’s Law

The purpose of this study is to reexamine two empirical regularities in the Japanese labor market: the constant labor share and Okun’s law. The former law relates to the price of labor in the labor market while the latter is a quantity law; they represent suitable benchmarks for judging the condition of the labor market. Although there are more elaborate statistical
techniques, these laws are frequently used because they can clarify the macroeconomic situation at a glance. First, a constant labor share is implied in theory by the CobbDouglas production function. Thus, labors share should be based on the production function. Labors share based on income has only been rising because of massive depreciation. Secondly, there have been several structural breaks in Okun’s law since the bubble collapsed, and the potential growth rate has fallen.