On July 16, MINKABU published an article titled, “Heizo Takenaka: ‘Raising Wages is the Wrong Policy’—Shigeru Ishiba is Just Another Populist; Concerns over the ‘LDP Protecting Vested Interests’ and Sanseito.” In this piece, Heizo Takenaka (Professor Emeritus at Keio University) states, “It is the most basic of economic principles that productivity rises first, and then wages follow in that order.” He further argues, “Raising wages when productivity is low only results in inflation without creating a virtuous cycle… As a result of continuing these policies, real wages have been falling for about six months. The citizens are becoming increasingly poor.”
Come to think of it, I recall Yukio Noguchi (Professor Emeritus at Hitotsubashi University) saying something similar. A quick search led me to a February 16 article in Toyo Keizai titled, “The Obvious Reason You Don’t Feel the Benefit of Wage Hikes: Let’s Correct Our Understanding of the Wage Increase Mechanism.” According to this, “As long as wages are rising due to price pass-throughs, real wages will never increase,” and “The root of the problem is that wage hikes are occurring without an increase in productivity. Improving productivity is indispensable for raising real wages.”
Beyond their titles as Professors Emeriti of Keio and Hitotsubashi, both are “big names” who frequently appear in the media. For middle-aged and older readers who treat the Nikkei Shimbun as gospel, their words must carry significant weight. I do agree with them on one point: there is a risk that, under current conditions, we will see inflation without it leading to real wage growth. I share that specific concern.
However, these two individuals seem to be speaking from a deeply ingrained bias that “the economy is always in a state of supply shortage, so we must constantly be on guard against inflation.” Even the output gap—which usually has an upward bias—has only just reached zero. Why, then, are we even having a discussion about productivity? My assessment is the exact opposite: real wages are not rising precisely because there is a deficiency of demand. Below, I will point out the flaws in their arguments.
(1) Falling Real Wages are Inconsistent with Supply Constraints
In a healthy process, real wages rise first, leading to increased private consumption. To meet this demand, companies raise capacity utilization and increase overtime. If supply is still insufficient, they invest in equipment and expand hiring. Eventually, the addition of production factors reaches its limit. Beyond that point, any further wage increases simply drive up prices in tandem, and real wages stop growing. I could understand their argument if this were the process:
- Initial stage: Nominal wage growth rate > Inflation rate
- After depletion of production factors: Nominal wage growth rate ≈ Inflation rate
However, in Japan’s case, real wages have not risen for nearly 30 years, and private consumption has been consistently stagnant. The situation is entirely different. I find it utterly incomprehensible why they are talking about supply constraints. Their assumptions fail to explain Japan’s current reality:
- Reality: Nominal wage growth rate < Inflation rate (For nearly 30 years!)
(2) Capital Investment Trends are Inconsistent with Supply Constraints
If an economy were truly on the verge of facing supply constraints, companies would aggressively increase capital investment. This is common sense. Yet, in reality, investment has been languishing for a long period.
(3) Current Account Trends are Inconsistent with Supply Constraints
Japan maintains a massive current account surplus of 30 trillion yen. If the country were truly facing supply constraints, imports would surge, and the current account would instantly flip into a deficit. From my perspective as a former emerging-market economist, this is the “basic of basics” in economic analysis.
Furthermore, the real net exports of goods and services, which trended toward a deficit in fiscal 2022, have since recorded a surplus for nine consecutive quarters. This movement is also entirely inconsistent with a supply-constrained economy.
In short, these two gentlemen are essentially arguing that it is “inappropriate to raise wages because of a supply shortage,” despite the fact that we are actually in a demand-deficient economy. This view is completely mistaken. I believe that if wage hikes are insufficient, we should increase the money in consumers’ pockets—even if it requires invoking fiscal policy. Doing so would increase private consumption, revitalize capital investment, and significantly boost productivity. Viewing Japan as facing a demand shortage rather than a supply shortage is far more consistent with the statistics I have cited here.
For the record, I disagree with almost all of Mr. Noguchi’s recent assertions. While I cannot devote too much time to this uncompensated blog, I intend to continue refuting his claims as much as possible from now on.
コメント