Why has the Unemployment Rate Been so Low in Japan? An Explanation by Two‐Part Wage Bargaining

The Japanese wage payment system is considered from a perspective of two-part tariff pricing. Using the "amusement park" analogy, Shunto wages can be regarded as an "entrance fee", whereas bonuses are a "variable charge". Empirical investigation showed that a qualitative difference exists between these two types of wage: Shunto sets the coordinated wage rate by focusing on the whole labour market condition, while bonuses respond to idiosyncratic shock. Based on the standard prediction of two-part wage tariff pricing, such a unique combination is the ultimate source of Japan's low unemployment.
JEL Classification Number: J51.