I used to identify as a corporate economist, but I frequently find myself unable to agree with what my former peers have to say. I have previously discussed their arguments regarding “exit strategies” and the “normalization of monetary policy” as examples, but this time, I want to address the so-called “labor shortage.” The media reports on this shortage incessantly, treating it as an indisputable fact. However, I question whether it is appropriate for economists—who are supposed to be pros at macroeconomic analysis—to speak in the same tone.
It is impossible to completely eliminate the mismatch between the job types and labor conditions offered by employers and those desired by workers, or the gap between the skills and experience sought by companies and those actually possessed by the workforce. Consequently, there will always be specific occupations facing a shortage. Construction workers and caregivers have long been in short supply, and I expect there is currently a shortage in inbound tourism-related sectors as well. There are likely many others. In addition to specific roles, there is currently an extreme excess of demand for new graduates, causing starting salaries to skyrocket. That said, even well-known companies are reportedly “increasing base pay while cutting bonuses,” so we must take these figures with a grain of salt.
However, we must strictly distinguish between macroeconomic and microeconomic arguments. The most simple and fundamental question is this: if the supply-demand balance of labor is truly that tight, why does real wage growth continue to decline? This is a matter of macroeconomic statistics, and we are seeing a persistent and severe contraction, are we not?
Furthermore, the most straightforward indicator of the labor supply-demand balance for a national economy is the unemployment rate. In April, it stood at 2.5%. While the market has tightened considerably, it had dropped as low as 2.2% at points in 2018 and 2019, prior to the pandemic. Even in those two years, the real wage index was stagnant; it grew by a mere +0.2% in 2018 and sank to -1.0% in 2019.
When people set aside these primary and simple macroeconomic statistics to argue that we are in a labor shortage based on isolated micro-phenomena, I simply cannot be convinced. What exactly is a “labor shortage” where real wages fall? My interpretation is entirely different: the labor market has consistently been in a state of excess supply. Despite this, the LDP-Komeito administration has done nothing but promote policies to further increase supply—targeting the elderly, women, and foreign workers. They have doggedly pursued policies that suppress wages amidst an already stagnant wage environment. While such policies might be necessary depending on the circumstances, why can they not wait until wages are on a normal growth trajectory? Furthermore, the LDP, Komeito, the Constitutional Democratic Party, and even the Democratic Party for the People are attempting to further encourage labor participation among the elderly and women through pension reforms. Shinjiro Koizumi, considered a leading candidate for the next prime minister, has advocated for labor market deregulation despite the market already being in a state of excess supply. It truly fills me with gloom.
Alongside the “labor shortage” myth, another flawed argument frequently peddled by economists is that “the primary cause of Japan’s long-term economic stagnation is low productivity.” I will be quite busy for a while and may not be able to write soon, but I hope to discuss this topic in the future.
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