Japan has little inflation because women can’t get a raise

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com


Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers tend to have lower bargaining power than prime-age males.

….One can argue that another factor restraining inflation is the significant demographic changes that have affected the bargaining power of the average worker. More women and more older workers entering the job market, with many working part-time and temporary jobs, has had a depressing impact on wages since these cohorts tend to have less bargaining power than males with regular jobs. Indeed, two recent Liberty Street Economics blog posts support this contention with evidence that the aging of the U.S. labor force is putting downward pressure on real wages. In particular, they find that as the labor force ages, more workers transition from the fast to the slow or negative real‑wage‑growth phases of their careers.

The failure of inflation expectations to rise is making it harder for the Bank of Japan to reach its inflation goal. Another potential consideration is that the very tight labor market is giving less of a boost to prices than might have been expected because of the dramatic transformation of the labor force in recent years.