Mandating Higher Wages Won’t Fix Japan’s Economy

by | Nov 18, 2016

Mandating Higher Wages Won’t Fix Japan’s Economy

by | Nov 18, 2016

Prime Minister Shinzo Abe of Japan has announced plans to request that Japan’s corporate leaders increase salaries and wages at an upcoming meeting of government, business, and nonprofit leaders in preparation for the spring labor negotiation period, or shunto. That would be the fourth straight year that Mr. Abe has proposed higher wages to strengthen Japan’s beleaguered economy.

The idea that higher wages can lead to economic recovery has become a core principle of what has come to be called Abenomics. But does the idea pave the road to another great depression?

The two main principles of Abenomics are a very loose monetary policy and a stimulative fiscal policy involving large government budget deficits. Japan has also raised its consumption tax. This policy agenda has been in place since the Tokyo stock market bubble broke in 1989.

Not surprisingly, this policy approach has failed to fix the problems in the Japanese economy. The policy probably looks familiar because it is also the standing policy in the US and most eurozone nations. It should also be familiar because it is really nothing new, but simply old-fashioned Keynesian economics with a new label.

This approach has resulted in the once vaunted Japanese economy of the 1980s becoming the world’s worst debtor nation. Its ratio of national government debt to the size of its economy, or GDP, is now close to 250 percent. Most countries that approach or exceed a ratio of 100 percent are considered to be economic basket cases. The last calculation for the US was 104 percent and growing.

Let us take a closer look at this idea of politically motivated increases in salaries and wages.

How would politically driven increases in salaries and wages lead to economic recovery? This notion has its foundation built on the observation that in growing economies workers generally experience higher wages, or at least increases in the purchasing power of their wages. Therefore, the idea is that higher wages will lead to economic growth.

Read the rest here at the Ludwig von Mises Institute.

About Mark Thornton

Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.

Our Books

thisone

Related Articles

Related

Did the FBI Win Joe Biden the 2020 Election?

Did the FBI Win Joe Biden the 2020 Election?

Joe Biden won the 2020 election as a result of 43,000 votes in three states. The election was far closer than the media has usually admitted. There were plenty of dubious factors that could have tipped the scales for a Biden victory, including machinations by the...

read more
A Prize System as a Solution to Drug Patents

A Prize System as a Solution to Drug Patents

Drugs are expensive. A vial of insulin can be up to $250 and a pack of pens can be up to $500. Every month, many families decide between life and food. For a country as rich as ours this is a disgrace and a moral crime. The culprit is the pharmaceutical monopoly. With...

read more

Pin It on Pinterest

Share This