Balakrishnan, R, M. Das and P. Kannan, “Unemployment Dynamics during Recessions and Recoveries: Okun’s Law and Beyond,” World Economic Outlook, April 2010, World Economic and Financial Surveys (Washington).
Hara, N., N. Hirakata, Y. Inomata, S. Ito, T. Kawamoto, T. Kurozumi, M. Minegishi and I. Takagawa, 2006, “The New Estimates of Output Gap and Potential Growth Rate,” Bank of Japan Review, 2006-E-3.
Steinberg, C. and M. Nakane, 2011, “To Fire or to Hoard? Explaining Japan’s Labor Market Response in the Great Recession,” IMF Working Paper 11/15.
Prepared by Elif Arbatli (APD).
Workers who are marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who work less than 35 hours per week and want to work more hours.
Naganuma and Uno (2016) find that long-term unemployed (unemployed for more than one-year) do not have a significant effect on nominal wages in Japan.
Steinberg and Nakane (2011) find that the response of unemployment to output is asymmetric and depends on the position in the cycle, with a larger response in downturns (a coefficient of 0.24) than in recoveries (a coefficient of 0.12). See Balakrishnan, Das, and Kannan (2010) for G7 estimates.
One approach following Hara et. al. (2006) is to calculate “structural” unemployment over time using the position of unemployment and the vacancy rate at any point in time relative to the 45-degree line and assuming a similar slope as observed during 1988-1993 to compute the level of structural unemployment. To control for the impact of demographic changes on the unemployment rate over time, we conduct this exercise using a demographics-adjusted unemployment rate constructed by holding the age-composition labor force constant over time (at 1990 levels).
Figures show the impact of the changing age composition of the labor force, holding the level of age-specific LFPRs constant at their 2007 level, and projecting aggregate LFPR based on actual population dynamics.
Kawata and Naganuma (2010) note that there were both “discouraged worker” and “household assistance” effects in Japan’s LFPR behavior after the GFC.
The estimates use prefectural data to exploit heterogeneity in cyclical conditions. The degree of cyclical downturn is proxied using the percentage change in employment during 2007–09 which was regressed on the change in LFPR during 2007–15, controlling for prefecture-level changes in the population’s age composition.