Are the Japanese Catching On
Source michael perelman
Date 06/02/18/21:53

High wages fuel growth; just the opposite of Bush's policy?????

The Wall Street Journal

In Japan, Wages Are Fueling Growth Rising Domestic Demand Solidifies
Economic Upturn; Self-Sustaining Recovery? By SEBASTIAN MOFFETT February
16, 2006; Page A6

TOKYO -- To see one reason why Japan may have entered a strong new phase
of economic growth, take a look at Pasona Inc., a large
temporary-staffing company.

In January 2005, for the first time in its 30-year history, Pasona gave
a pay raise to all the office workers used by its clients. They received
raises averaging some 5%, and computer-literate office workers in the
Tokyo area now typically make 1,600 yen or 1,700 yen (about $13 or $14)
per hour.

Higher wages go a long way toward explaining why Japan likely grew so
fast in the October-December quarter of 2005. Because people are being
paid better, consumption has been rising, and driving growth. Economists
on average forecast annualized gross-domestic-product growth of about 5%
-- the widest measure of economic activity -- when the government
announces the data on Friday.

Such a performance would outpace the U.S., which suffered a sharp
slowdown to 1.1% annualized growth for that quarter, and also likely put
Japan ahead of the big European economies. After Japan's late-1980s
asset bubble burst, the country entered a long period when it was
hobbled by slow growth -- and sometimes recession. It provided little
demand for products from the rest of the world. Combined with the
current slump in the euro-zone economies, that left the world heavily
reliant on demand from the U.S. Now, because the Japanese economy is so
large -- second in the world only to the U.S. -- its return to health
might provide an extra engine of global growth.

Already Japan is buying more products from countries around it, and that
in turn is nudging up growth in the region.

Stronger consumption means that "the [growth] in domestic demand is the
strongest since the bubble," says Naoki Murakami, chief Japan economist
for Goldman Sachs.

Japan, say an increasing number of economists, has turned a corner.
Though the country has likely now started its fourth-straight calendar
year of growth, this recovery looked fragile until 2004: Much depended
on outside demand -- things like machinery exports to equip roaring
Chinese factories. When export growth stalled for a few quarters in
2004, Japan's economy as a whole stagnated too.

However, in 2005 Japanese growth was driven by strong rises in consumer
spending, which accounts for about 56% of Japanese GDP. What is more,
this consumer spending was based on the first growth in overall wages
since 1997.

The upshot is that Japan might have entered a self-sustaining recovery:
As wages rise and people spend more, corporate profits rise because of
the extra demand for their products. This can create a virtuous cycle as
corporations can then raise wages again, and so on. Because of this,
most economists are now optimistic about Japan's economy in the next few
years -- though major structural problems, such as a rapidly aging,
declining population, will limit growth in the longer term.

Unions hope to kick-start a similar cycle in Germany. After four years
of wage restraint there, corporate profits have risen. But wage growth
has remained weak, hindering consumption growth until now. German unions
are this year demanding large raises though, which would enable those
workers to shop more and in turn fuel economic growth.

In Japan, there are already signs that the trend toward bigger paychecks
could strengthen this year, making a continuation of consumption growth
likely. From 2002 to 2005, the Japan Council of Metalworkers' Unions
didn't demand across-the-board wage increases, as economic growth was
shaky, and Japan's average consumer prices were still falling slightly.
That meant corporations realized little profit from increased sales --
and that workers could buy more with the same wages. In fact, because of
pay cuts at smaller firms, average monthly wages fell in these
industries by around 4,000 yen, says Hisashige Danno, general secretary
of the council, which represents steel, electrical and shipbuilding workers.

This year, however, the union group is demanding a raise of 2,000 yen a
month for electrical workers, and a 3,000 yen raise -- spread over two
years -- for steel and shipbuilding workers. The reasoning: Average
consumer prices have started to inch up recently, and corporate profits
are expected to rise for the fourth-straight year in the fiscal year
ending March 31. Employers likely will reply to the wage demands in the
middle of March.

"From 2001 to 2005, the corporations were rebuilding themselves, and we
thought they weren't ready to increase pay," Mr. Danno says. "Now
they're more profitable, so we can ask for a raise."

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