commissioner.org
| 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." |
Copyright (c) 1998, Joongpil Cho