On a competitive labor market, equilibrium is the point at which supply equals demand. Figure 1 illustrates the labor supply and demand curves on a competitive market, showing that, at equilibrium E* workers are employed and paid wage w*. However, on this market, when workers are paid wage wL, which is below the equilibrium wage of w*, the demand curve indicates firms demand ED workers, while the supply curve indicates that only ES workers are willing to supply their labor at this wage. That is, the quantity of labor demanded exceeds the quantity supplied. Therefore, a wage below equilibrium indicates a labor shortage. The competition among firms for the few available workers will thus put upward pressure on wages and move the wage up towards its equilibrium value, w*. Figure 1. View largeDownload slide Labor Supply and Demand Framework. Figure 1. View largeDownload slide Labor Supply and Demand Framework. The contribution of Professor Yuji Genda—a prominent labor economist in Japan—starts by presenting the puzzling phenomenon where labor shortage and stagnating wages have been occurring simultaneously in Japan since 2010. The question of why we do not observe an upward pressure on wages when there is a labor shortage is considered an important topic in Japan, although it has not been hitherto analyzed in-depth by researchers. Professor Genda’s goal is to identify the best explanation for this phenomenon by asking 21 notable researchers, including bureaucrats, to share their views with each other. The researchers who have agreed to participate are experts in the field and many of them have published in top academic journals. It is remarkable that Professor Genda managed to convene these outstanding economists to a round table to discuss their opinions. In this process, common, prevailing explanations on the subject matter are identified, but there were also wide-ranging and various views expressed. Let me summarize the common explanations. Professors Daiji Kawaguchi and Hiromi Hara focus on the increases in non-regular employment. Specifically, the share of part-time workers has increased from 27.7% in 2001 to 37.5% in 2015 in Japan. Furthermore, they argue that the labor supply of non-regular employees—mostly married women and the elderly—is perfectly elastic (ie, the labor supply curve in Figure 1 is flat). Therefore, although there is a shift in labor demand, the wage increase for this group of workers is limited. They also mention the possibility of a ‘Lewisian turning point’ on the labor market for non-regular employees in Japan, where the labor supply curve of non-regular employees will eventually become inelastic (ie, the labor supply curve in Figure 1 becomes steeper) and, therefore, the labor market for non-regular employees will move from labor surplus to shortage. As a result, wages will eventually increase. Along this line, Professor Etsuro Shioji shows evidence of an influx of workers from the manufacturing sector into the healthcare service sector with no significant wage decrease. This means the wages of workers in the healthcare service sector are rigid. Professor Ayako Kondo also points out that wages in the healthcare sector are set to be low due to the highly regulated nature of this sector. She mentions that the fees for nursing-care benefits determined by the government are also set to be low, making the market mechanism inoperative. Professor Soichi Ohta notes that the surge of non-regular employees above 65 years of age, as there is a large wage gap between regular and non-regular workers, is part of the reason why the wages in Japan have not increased. Professor Ohta also suggests two additional factors. The first is the stagnant labor productivity, which has also been pointed out by Professor Osamu Umezaki as a consequence of limited training opportunities, such as on-the-job and off-the-job training, for employees in Japan. The second factor is that individuals currently in their early 40s experienced severe employment conditions when they graduated from school, that is, somewhere between the late 1990s to early 2000s, because that was the worst period for the labor market in recent history, which means they have missed opportunities to accumulate sufficient experience and skills during their work-life. This second point has also been investigated in-detail by Mr. Keita Kuroda. In sum, this book is interesting because it offers explanations not only stemming from a traditional economics framework, but also from focusing on particular industries. For instance, Professor Masahiro Abe describes that, due to deregulation in the transportation industry, which allowed bus companies to divide their operations regionally, bus drivers’ wages decreased. Since deregulation had a significant impact on this industry, as described in detail by Professor Abe, this case demonstrates the dynamics of the overall Japanese labor market over time related to drastic changes. Interestingly, there are different views that contrast the prevailing explanations. For instance, Professor Ryo Kambayashi and Dr. Yuko Ueno show that worker wages are actually increasing if the focus is on workers working under a continuous employment relationship. Specifically, these groups of workers’ wages increased 4.1% annually, on average, between 1993 and 2012, with a median rate of the annual increase of around 2.0%. Therefore, as far as the workers in the continued employment relationship are concerned, wages have been steadily increasing. Since the late 2000s, the baby-boomer generation has been moving toward retirement, thus leaving the labor market. As this generation had enjoyed relatively higher wages compared to the young entrants on the labor market, they conclude this is the reason why the overall average wage appears to decline. Baby boomers’ retirement is therefore an important element in these discussions. Professor Genda’s project to work with various economists and ask them for their ideas is a unique and ambitious approach looking for novel thoughts. So far, it has worked very well, which makes this book a must-read for policymakers, as it offers an important message. Since there can be various explanations for the discussed phenomenon, it is essential to strike a balance among all these views. The book also makes an important contribution to academic research by explaining the labor market situation in Japan. Furthermore, it also provides inspiration and scope for future research. A next step after this book is, for example, to empirically examine whether the elasticities of labor supply and demand of the elderly and married women have changed over time. Additionally, analyzing the situation of the workers in the healthcare service industry is an urgent matter due to the rapid aging population in Japan. This industry is expanding, with the increasing employment among women (Kawaguchi and Mori 2017). Focusing on people currently in their early 40s is another important issue, since improving their human capital accumulation is essential, because they are likely to continue working over the coming decades. Reference Kawaguchi, Daiji and Hiroaki Mori. 2017. ‘ The labor market in Japan, 2000–2016’. IZA World of Labor 385. doi: 10.15185/izawol.385. Available at https://wol.iza.org/articles/the-labor-market-in-japan © The Author(s) 2018. Published by Oxford University Press in conjunction with the University of Tokyo. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
Social Science Japan Journal – Oxford University Press
Published: Apr 5, 2018
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