Japan’s tight labour market generates deflation…

Just a quick observation today as Japan released its October unemployment rate at 2.8%, way below supposed full employment. Yet it’s still waiting for wage inflation to kick in, for about  twenty years now…

Japan is unique in some ways with its social contract between dead wood salarymen and other stabilising institutions, still as the leading indicator for our post-crisis developed economies it’s hardly irrelevant:

  • balance sheet recessions and their aftermath take generations to restore animal spirits for debt;
  • aging population;
  • advancing automation.

What it doesn’t have that other DMs do is inequality but that’s also a powerful deflationary force. Nor does it have a flood of cheap migrant labour which equally deflationary, especially when you’re already over-supplied.

Just sayin’, for all of you inflation hawks out there.

Looking at you, Bloxo, Boaky…

Comments

    • Could be. If the “social contract between dead wood salarymen” had an effect, it would be to make unemployment look better than it would be based on productivity.

      So, as a business, your first pool of labour isn’t the unemployment queue, it’s the basement.
      The dead wood would get pressed into service long before the job ads went up.

      So, for Japan, it would probably make sense to calculate that dead wood in much the same way we would count underemployment.

      • I suspect this “social contract” also has something to do with the racial monoculture. Japan has no disadvantaged minorities that tend to have higher rates of unemployment (sometimes not participating at all) that boost the “natural” rate in Anglo nations.

  1. I suspect this “social contract” also has something to do with the racial monoculture. Japan has no disadvantaged minorities that tend to have higher rates of unemployment (sometimes not participating at all) that boost the “natural” rate in Anglo nations.

    Yes they do. The minorities include “buraakumin” (an outcast community that traditionally did “dirty” jobs such as killing animals) and the sizable Korean population who cannot vote and who cannot hold passports. They do not have high unemployment because they band together to create businesses, much of which are successful (Masayoshi Son is Korean and would never have cut it in a Japanese corporation).

    • These are very small minorities wiki has them at around 850,000 each which is 0.6% of overall population. Even if they had 30% unemployment like some minorities here they would barely budge the dial overall. Plus I doubt the level of disadvantage is anything like our remote indigenous communities or recent refugee arrivals.

      • These are very small minorities wiki has them at around 850,000 each which is 0.6% of overall population. Even if they had 30% unemployment like some minorities here they would barely budge the dial overall. Plus I doubt the level of disadvantage is anything like our remote indigenous communities or recent refugee arrivals.

        The point is that they do have minorities and they face quite large barriers to “gainful employment.” I agree that our indigenous people have a more dire situation, but the reasons for that are quite different. Actually, Okinawa is essentially a colony of Japan. The prefecture has the highest rate of unemployment in Japan (approx 5.7%). This would likely be higher without the presence of the U.S. bases.

  2. The Economist published a graph recently showing that the link between the unemployment rate and the inflation rate was broken 20+ years ago.

    • Yup, shame the Economist has stopped at debunking that myth as there are an absolute heap more myths from the Keynesian/Monetarist stable that need to be tossed in the bonfire.

    • I posted yonks ago ago about wages and productivity diverging, Rubin w/ Clinton, when advised Rubin didn’t blink.

      http://www.epi.org/productivity-pay-gap/

      disheveled…. some seem to be slowly coming awake…

      Dominic…

      How many types of Keynesian’s are there, are neo keynesians the same as post keynesians – ????

  3. The Horrible Scott Morrison MP

    Deflation is bad because econonics tells us that people won’t buy anything that they know will be cheaper next year. Except phones. And cars. And food. And all consumer items. And pu55y. This is why people in Japan only buy fine art and Australian property.

  4. Doesn’t this go against your entire MB argument that migrant labour is a dis-inflationary force?

    Hmm technology/automation or migrants – lets blame migrants

  5. In an article I read two days ago Japanese GDP per working-age citizen recently over-took that of the United States whose population is still increasing.

    Another poke in the eye for the Big Australia spruikers ..