WARNING SIGNALS
Reading Crisis Economics
Focus on: Secular Stagnation
How Can Japan End Two Decades of Secular Stagnation?
Escaping the Stagnation Trap: Policy Options for Japan, OECD, January 2015
After a prolonged period of slow growth and low inflation (GDP growth less than 1% per year over the past two decades), Japan has launched in 2013 its famous Abenomics policy with its well known “three arrows”: a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms, to enhance Japan’s competitiveness. These measures have increased the likelihood of escaping the stagnation trap, the OECD argues. But further action is needed, and in particular structural reforms. The objective is to remove regulatory bottlenecks to investment, reduce the administrative burden for business, and facilitate company restructuring. Japan would also benefit from bold structural reforms that promote trade and investment, reduce labor market dualism and increase female labor force participation, the OECD’s report suggests, adding that regulatory and employment reforms could boost the level of GDP in Japan by almost 2.5% after 5 years. (Read more)
Japan Puts Secular Stagnations Thesis to the Test, Bill Elmott, The Financial Times, January 12th, 2015
Japan is the world champion of Secular Stagnation, Bill Elmott, former editor of The Economist, considers. Although the unemployment rate is only at 3.5%, real wages have been flat or declining for the past three years, with one single rise in the past decade. The reason, the author analyzes, is that there is too little investment in labor-saving innovation in Japan. And competitiveness is declining, because of the duality of the labor market: on the one side, protected jobs, and on the other, insecure, untrained jobs.
Japan is therefore confronted to a double test: 1) See if wages can start to rise. 2) Reform its labor low. In this situation, one must talk about “labornomics” rather than “Abenomics”, the author argues. (Read more)
Sharpening Abenomics third Arrow: Labor-market reform in Japan, by Giovanni Ganelli, VoxEU, January 15th 2014
The necessity to reform Japan’s labor market was also pointed out, one year before, by Giovanni Ganelli, senior economist at the IMF, in a VoxEU paper, in which he presents research showing that revamping Japan’s dual labor markets to increase productivity should be an important component of the growth strategy. Reducing the difference in the employment protection would help to reduce the labor-market duality, and reducing the duality results in a higher growth, he argues, which could help to exit deflation. (Read more).
Once again, Japan’s economic growth for the last quarter of 2014 was revised lower, to 1.5% instead of 2.2%, on an annual basis. And the government has not been able to lift inflationary expectations. The annual GDP figure for 2014 was also pushed down to a slight contraction, instead of a small expansion. This situation shows that, for the moment, Abenomics had shown little result in reviving growth and increasing inflation expectations.
In a recent report on the solutions to escape the secular stagnation trap, the OECD points out that structural reforms are urgently needed in Japan to encourage investments. The country would also benefit from bold structural reforms to reduce labor market dualism, the report adds. An analysis also shared by Bill Elmott and Giovanni Ganelli, who consider that Japan’s main problem comes from labor market rigidity, which hampers labor productivity.