Keiko Murata

Credit, Housing Collateral, and Consumption: Evidence from Japan, the U.K., and the U.S.

The consumption behavior of U.K., U.S., and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral, and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for U.K. and U.S., but not Japanese, households has undergone large shifts since 1980. The average consumption-to-income ratio rose in the U.K. and U.S. as mortgage down-payment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is similar in the U.S. and U.K. In Japan, land prices (which proxy house prices) continue to negatively impact consumer spending. There are negative real interest rate effects on consumption in the U.K. and U.S. and positive effects in Japan. Overall, this implies important differences in the transmission of monetary and credit shocks in Japan versus the U.S., U.K., and other credit-liberalized economies.

Changes in the Japanese Employment System in the Two Lost Decades

The authors re-examine developments in two key elements of the Japanese employment system, seniority-based wages and lifetime employment, using recent microdata from the Basic Survey on Wage Structure. In contrast with previous studies, the authors find evidence that these practices are eroding. For seniority wages, for example, they find that the age-wage profile has become flatter in recent years, especially for employees in the middle and final phase of their careers. And for lifetime employment, a clear downward trend has developed since the early 2000s in the share of lifetime employees among younger, university-educated workers. The findings suggest that a growing share of educated younger workers choose to leave indefinite-contract jobs due to the poor prospects for seniority-based wage progression, while older workers choose to stay in their present job despite stagnating wages, because it may be more difficult for them to find alternative employment.