This study constructs a model that describes the Japanese labor market between the World Wars. By using historical data, the contribution of various economic factors to wage differentials between the modern (industrial) and traditional (agricultural) sectors is empirically examined.
The bargaining power of labor in industry was the most effective factor followed by surplus population in the traditional sector as the second. Factors that have been commonly quoted as significant in the literature, such as the devaluation of agricultural goods and technological progress in industry, had only minor effects on the wage differential.
