Month: April 2016

Who needs people?

It is well-known that Japan’s population is both aging and shrinking. This is contributing to a range of economic problems, from declining overall growth to rising fiscal deficits to labor shortages in selected industries. How Japan deals with its demographic challenges will be watched closely by other, notably Korea–which is just a decade or two behind in its own aging process–and China, which is seeking to “get rich before it gets old.”

One potential response to Japan’s shrinking labor force would be to raise female labor force participation, which is quite low by advanced country standards. But a shortage of child and elder care services, exacerbated by limited government resources and regulations on private provision, is posing a serious constraints to such efforts.

A more open immigration policy would help, both by addressing specific labor shortages in child and elder care and by increasing the overall workforce. However, the appetite for increased immigration in Japan is extremely limited.

Instead, Japan is eyeing developments in robotics to help. Robots have been developed to aid older citizens meet their daily needs and, as described in the attached article, similar efforts are underway to develop child care robots:

It is hoped that such technologies could also become an economic driver in Japan. But it raises the question: would Japanese people rather be cared for by robots than foreigners? My very small and extremely unscientific survey of family and friends yields the somewhat surprising result of, well, yes.

Now, if scientists can just develop a way to get robots to pay taxes….

Death by overwork

Japan’s labor has long been characterized by very long working hours and a limited ability to take vacation. The failure to achieve what many would consider necessary work-life balance has a range of social and economic implications. As one example, efforts to increase the comparatively low level of female labor force participation have so far had disappointing results, in part because long and inflexible work hours make it difficult for families to have two earners.

The stressful work environment can be seen most dramatically in the concept of karoshi, or “death by overwork.” As seen in the attached article, data on clams for compensation for such deaths indicate that they have risen in recent years, in particular for women.

Why should such deaths have increased in recent years? One possibility is that it reflects increased labor shortages, in the context of an aging and declining population. Labor shortages have emerged throughout the economy, for example in construction and services. Typically, a tight labor market would be expected to lead to increased hiring, made possible by higher wages. But neither are happening much in Japan. Real wages have declined in the last several years (as a consumption tax hike raised the cost of living but did not lead to fully offsetting wage increases) and employment hasn’t risen sufficiently. The obvious sources of additional employment–female workers or immigrants–are held back by a combination of legal obstacles and social norms.

So, existing workers seem to be bearing the brunt of the labor shortage. With few limits on overtime in Japan, adjustment by employers has take place in a manner that makes the lives of many workers in Japan more difficult, in some cases with tragic results. This underlines the need for deep reforms of the Japanese world of work.


Japan: Ice cream and the lost decades

In Japan, the overall price level has declined since the bursting of a massive real estate and stock market bubble in the early 1990s. To put that in perspective, a college student n Japan today will have never experienced an extended period of rising prices.

Why is that a problem? More typically, people complain about inflation, so deflation should be welcome, right? There are at least two problems with this view. First, wages are also a price of sorts–the price of labor. And with deflation, nominal wages also tend to decline. Second, when expectations of deflation become entrenched in people’s minds, that can lead an economy into a deep hole, from which it can be difficult to emerge. Consumers, expecting prices to fall, will hold off on their purchases, especially for consumer durables. And businesses, seeing declining demand–and anticipating further price declines–will hold off on investing in new plant and equipment or hiring new workers. Sustained deflation may also reduce incentives to engage in R&D, or else tilt such activities toward cost savings and away from product innovation. This is precisely what we have observed in Japan for the two-plus decades that have come to be know as the country’s “Lost Decades.”

Since 2011, the Abe administration has sought to reverse this process, by raising inflation into positive territory and increasing domestic demand, turning  a vicious cycle into a virtuous one. But despite some early success, this has proved difficult, in part because changing people’s mindsets is hard.. Despite the extremely accommodative monetary policy of the Bank of Japan, inflation remains close to zero and expectations remain well below the BoJ’s target inflation rate of 2 percent. Businesses have been reluctant to raise prices, knowing that consumers have become extremely price sensitive after decades of falling prices. And when price have increased, these same businesses have been reluctant to raise wages or investment, in part reflecting fears that any gains will be temporary.

The attached video provides a really interesting example of this problem. In mid-March, a Japanese ice cream company, Akagi Gyunu (famous for its uniques flavors, such as spaghetti or potato stew!) announced its first price hike in 25 years, equivalent to less than a dime per cone. The increase was accompanied by this heart-felt apology video. While many of us might wish that companies in their countries would take a similarly socially-oriented position, the video can also be seen in a much less positive light–as a reflection of the challenges that Japan still faces in exiting deflation and its lost decades.

A Japanese ice cream maker deeply apologizes for raising prices by 9 cents



If you have somehow stumbled across this blog, welcome. As must be obvious, this blog is brand new and, in fact, this post is something of a test. Over the, I hope to make the site more beautiful, but the bare bones approach seems right for now.

This blog aims to focus on economic, social and cultural developments in Asia and, in particular, in Japan. I have spent the last decade-plus as an economist working in, or teaching about, Asia. During this time, I’ve come to increasingly appreciate the (what should have been obvious) need to understand the history and culture of a  society as a fundamental part of understanding its economy. It is these linkages that I am most interested in exploring here, and I would love to hear from any of you that have similar interests.