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In this paper, we focus on the real dimension of the price dynamics in Japan between 1980 and 2000. We use a panel industry dataset to analyze the impact of institutional and structural factors on the heterogeneous price dynamics of 10 manufacturing sectors. Although the evolution of unit labor costs seems to be the driving force, our structural analysis underlines the importance of the increasingly competitive environment, as captured by rising import penetration. Along with the decline of bargaining power of the workforce, this is at the origin of the deflationary pressures that characterized the Japanese economy during the Lost Decade., Special Issue "26th Symposium of Money, Banking and Finance" Guest Editors :Sébastien Galanti and Grégory Levieuge, info:eu-repo/semantics/published

A common explanation to German economic success for 10 years has been its ability to reform its labour institutions: from 1990, the percentage of firms abiding by the traditional sectoral contracting wage-setting system decreased significantly, allowing new firms to pay lower wages. This increasing heterogeneity of firms would explain, to some extent, the rising wage inequality observed in Germany for 25 years (Dustmann et al. 2009; Card et al. 2013). The Hartz laws (2003–2005) were also supposed to strengthen labour market flexibility by reducing reservation wage and implementing active labour market policy, by creating mini-jobs, etc. (Eichhorst and Marx 2009. The adoption of working time accounts also allowed to adjust employment volume by working hours rather than hiring and firing (Burda and Hunt 2011; Blot et al. 2015). This widespread set of reforms implemented by Germany would explain how Germany managed to cross the subprime crises without lasting fall of employment. This success also contrasts with “sclerotic” French economy, unable, according to many economists, to evolve so as to take globalization constraints into account and to reform its institutions (Hairault 2015) or to promote trust and cooperation (Aghion et al. 2010).

International audience; This paper focuses on the real - as opposed to the monetary - side of the economy to explain price dynamics in Japan between 1981 and 2001. We use a panel industry dataset to examine the impact of institutional and structural factors on the heterogeneous price dynamics in 10 manufacturing sectors. Although the evolution of unit labor costs may seem to be the driving force of these price dynamics, our analysis underlines the importance of the increasingly competitive environment, as captured by rising import penetration. Along with the decline of bargaining power of the workforce, this is a key factor underlying the deflationary pressures that characterized Japanese manufacturing industries in the 1990s.