The Minimum Wage in a Deationary Economy: The Japanese Experience, 19942003

The median wage in Japan has fallen nominally since 1999 due to a severe recession, while the statutory minimum wage has steadily increased over the same period. We used large micro-data sets from two government surveys to investigate how the minimum wage has a¤ected wage distribution under the unusual circumstances of deation. The compression of the lower tail of female wage distribution was almost completely explained by the increased real value of the minimum wage. The steady increases in the e¤ective minimum wage reduced employment among low-skilled, young and middle-aged female workers, but the mechanical e¤ect associated with disemployment on wage compression was minimal