What's happened to real incomes in Japan?
Real incomes in Japan haven't risen over the last twenty years. Why?
Firstly, apologies for the lack of posts recently. I’m now back in Japan after visiting the UK. I aim to return to the one post a week schedule I started before this break.
A good example of the control the Japanese government has over the economy one way or another is the recent news that postal rates will rise for the first time since 1994:
Japan Post to hike postage fees for the first time since 1994
If the Japanese government had really wanted inflation, it could have had it. It has enough levers through regulation and subsidy regimes to achieve that. The problem is, it would be the wrong sort of inflation — cost push inflation rather than demand pull.
Why is there a lack of demand pull inflation in the Japanese economy? Because real incomes haven’t risen consistently since 1997.
A look at the chart above shows volatile real earnings, with rises every five years or so, but with deeper troughs. When real earnings are indexed from 1991, they look like this:
As you can see, real earnings peaked in 1997 and have been on a fairly consistent downward slide since then.
Japan has gone almost as far as it can go in terms of labour market participation. Its savings rate has also fallen about as far as it can go. If the Japanese government wants consumption to rise, it’s going to have to do something about real incomes. Hence the recent panic in Japanese government circles about raising wages:
Kishida Seeks Bigger Wage Growth than in This Year’s “shunto”
It doesn’t seem very confident that wages will rise in the near term however, as they are now proposing a temporary tax cut:
Government floats ¥40,000 income tax cut to ease inflation pain
So why aren’t Japanese real wages increasing? That’s the purpose of this section of the Japanomics newsletter. In a series of articles, I’ll look at some of the reasons put forward for the lack of growth in real incomes and assess how much impact they’re likely to have.
There’s surprisingly little literature on the poor performance of real wages in English, so I will use this book:
Chapter by chapter, this book looks at different parts of the Japanese labour market and asks why incomes haven’t risen despite the shortage of labour.
In next week’s article, we’ll look at the role of government regulation in the health and welfare industries in restraining growth in incomes.