Saturday, August 17, 2013

The Neoliberal Choice

Hiroko Tabuchi, writing in the NYT, shows us what a non-liberalized labor market looks like in the modern world:
[There is] an intensifying battle over hiring and firing practices in Japan, where lifetime employment has long been the norm and where large-scale layoffs remain a social taboo... 
Sony wants to change that, and so does Prime Minister Shinzo Abe. As Japan’s economic recovery slows, reducing the restraints on companies has become even more important to Mr. Abe’s economic plans. He wants to loosen rigid rules on job terminations for full-time staff... 
Labor practices in Japan contrast sharply with those in the United States, where companies are quick to lay off workers when demand slows or a product becomes obsolete. It is cruel to the worker, but it usually gives the overall economy agility... 
Critics of labor changes say something more important is at stake. They warn that making it easier to cut jobs would destroy Japan’s social fabric for the sake of corporate profits, causing mass unemployment and worsening income disparities. For a country that has long prided itself on stability and relatively equitable incomes, such a change would be unacceptable. 
It would be a radical change. A combination of lifetime employment, seniority-based pay and intense worker loyalty to the company was credited for Japan’s postwar economic miracle, as stability and growth went hand in hand. But when the Japanese economy stumbled in the early 1990s, companies found that Japan’s rigid labor practices made downsizing impractical... 
Proponents of employment change point out that stiff protections for workers have prompted companies to make major cuts in hiring, shrinking opportunities for scores of younger Japanese.
Mark Ames, never one to mince words, replied on Twitter:
NYTimes rehashes same old anti-labor libertarian bullshit..."Economists say... flexibility to labor market...compete"...NYT: What Japan needs to do is listen to what "economists say." And ain't it grand that crypto-fascist Abe is anti-labor neoliberal...The same neoliberal crap, same Soviet-like propaganda "flexibility" "bloated" "compete" NYT used in 1990s...Those code words are loaded with all sorts of discredited neoliberal market theory assumptions[.]
So maybe it's all a lie? Maybe liberalized labor markets don't help any economy in any way? Maybe the choice Tabuchi depicts - between security and dynamism - is a false one?

The truth is: We'll never know. That's how history works. But it's certainly true that the U.S.took a far more neoliberal (laissez-faire) route in the 80s, 90s, and 2000s. The different paths taken by Japan and the U.S. are a sort of "natural experiment", if an imperfect one. It's hard to know which of the present-day differences between the two countries can be chalked up to this divergent path. But we can at least make some educated guesses.

It's true that Japan is a more equal society than the U.S., though less equal than West and Central Europe. It's also true that Japan has a lower unemployment rate, though that may just be due to different ways of defining "unemployment"; Japan has a lower labor force participation rate than the U.S., though part of that is due to age structure). And Japanese corporate profits have traditionally been lower than American profits.

But Japan's heavily restricted labor market and its government protections against hostile takeovers have not saved it from a declining labor share of national income, nor from steadily falling wages, nor from steadily rising inequality.

And it seems to me that these rigid labor market protections and corporate legal and regulatory protections have imposed some real and serious costs on Japanese society. First of all, Japanese total factor productivity has essentially flatlined since the late 80s, performing much worse than TFP in America or even Europe. 

That's what economists mean when they use words like "flexibility". It means that Japanese people can only maintain their rich standard of living by working insane amounts of unpaid overtime. That in turn means that many men in Japan can only see their families on the weekends. Those are real human costs.

Now maybe that productivity flatline is due entirely to other factors. But the evidence says that Japanese companies that are kept on life support by the government (directly, or indirectly through big banks) are responsible for a decent-sized chunk of the stagnation (here's another study and yet another study that agree). Are those studies are done by mendacious neoliberal economists with an axe to grind? Maybe, I guess! But until someone shows me some different results, I'm going to go with the best guess of the people who study this stuff (I also checked the methodology of two of the papers and found it generally sound, though these things are always hard to say.)
But it seems to me that the cost of Japan's refusal to embrace neoliberalism go beyond lack of "flexibility". I think that Japan's labor-protectionism has caused deep unfairness to persist in Japanese society. Japan is still one of the lowest-ranking countries in terms of women's equality. Go into a lot of Japanese companies, and you still see the men climbing the corporate ladder while the women serve tea. That cozy boys' club is protected by the government, which makes it incredibly difficult to fire the mostly-male "正社員" (lifetime) employees, while making it incredibly easy to fire the mostly-female "契約社員" (contract) and "アルバイト" (part-time) employees. It really still is Mad Men in much of corporate Japan. (And did I mention the fact that female labor force participation in Japan in under 50%?)

And speaking of those different tiers of workers, Japan's protected, restricted labor market seems to be creating an enduring class division. If you manage to grab one of those "正社員" (lifetime) jobs, you're set - say hello to job security, guaranteed pay raises. But if you miss that bus, and end up as a "契約社員" (contract employee) or "アルバイト" (part-time employee), you're screwed. It's very very difficult to get a "lifetime" job if you've ever worked at a "contract" or "part-time" job - in other words, say hello to a lifetime of low wages, job insecurity, and menial servitude. Now, realize that most Japanese workers are hired either right out of college or right out of high school (if you take a "gap year", you're toast). So that one first job will determine your entire future.

In the past, about a fifth of Japanese people age 15-24 failed to get "lifetime" jobs, and many of those were women who - for better or worse - would end up dropping out of the labor force when they got married. Today the figure stands at about half, and now a substantial number of those (for better or worse) are men. Japan's rigid labor market risks creating a permanent underclass.

Like I said, we'll never know for certain whether Japan could have prevented this troubling state of affairs through methods other than neoliberalism. And I'm not saying Japan's system sucks - the dignity, security, and high standard of living enjoyed by Japan's "lifetime" employees, and by their wives and children, is real. But looking at the U.S., I see that despite all our economic woes, women have achieved a measure of equality, your first job out of college does not determine your life, and lots of people don't have to work 20 hours a week of unpaid overtime just to afford a first-world standard of living.

There are lots of good policy steps Japan could take that have nothing to do with labor market liberalization or the dismantling of corporate protections. But it seems to me that the choice Hiroko Tabuchi presents is very real. It can't be waved away. Japan really does have to choose: neoliberalism and "flexibility", or corporatism and continued social and economic rigidity. It's not an easy choice.

Update: As a number of commenters have pointed out, neoliberalism vs. corporatism is not a binary choice. You can have some of each, just like you can go to the grocery store and buy some eggs and some milk. The point of this post is that there is a real tradeoff between the two. Anyway, the truth is, Japan has already chosen to take a few steps in the direction of neoliberalism. A friend who works in Japan in private equity writes:
I'd point out that the Japanese labor market is already in the process of becoming more flexible, although slowly. A few points that come to mind: 
A. Rise of the IT industry
Now, IT companies such as Rakuten, Yahoo Japan, DeNA, GREE, NRI and so on are creating a huge number of jobs, and these companies don't offer a life-long employment nor hire you necessarily out of college. This is partly because the IT services industry is a more skill-oriented field and thus people can easily move between companies, while Japanese traditional large corporations still tend to nurture "generalists" (i.e. the value of employees in those companies is "knowing the system/culture of their company"), and hence those generalists are usually useless once they move out of the company that they joined out of college. So the rise of IT service industry is changing the employment custom to some extent. 
B. Legislative changes in the staffing service industry
The Staffing service industry offers contract employees to many corporations. Due to the legislative deregulation of the Temporary Staffing Services Law in 1996, 1999 and 2004, the number of contract employees has hugely increased. This was partly in response to increased pressure from the business sector after the burst of the economic bubble... But as you know, after the GFC in 2008, criticism against this staffing service industry is intensifying... 
C. Lay-offs at Japan Inc.
These last few years, many major Japanese companies ("Japan Inc"s) such as Sony, Panasonic, Sharp, NEC, among others, haven't been performing well and had to lay-off a few workers. This was a big shock for those who are employed by these companies. Not only are those manufacturing companies losing their competitive edge, but also Japanese big banks with solid balance sheets cannot employ all their people forever - they typically kick out many people in their 40s and send them to client companies (this is possible because Japanese banks still have huge power over their borrower companies). Those people's salary will typically be cut in half...  


  1. Seems like a false choice to me and seems that lot of mainstream economics, especially of the neoliberal sort, is all about presenting false choices.

    In the US in the 1990 and 2000s were told that we have to choose: either deregulate the economy or we'll get slow econoimc growth. Tough choice!

    Well we know what happened. We deregulated - which made a lot of people rich - and we got a housing bubble and epic financial crisis.

    1. I think it's a real choice.

    2. No, it's pretty much a false choice, and I think that anyone analyzing the political (the sort of right wing nationalism Abe represents, say) and economic state of play (it's probably a new effort to keep unviable businesses viable by reducing salaries, and thus welfare). In any event, in the face of a global economic distress of insufficient demand, it just doesn't make sense to add "flexibility" without making damned sure that that the increased productivity is redistributed in terms of valuable services (better than outright transfers like the EIC or anything like that). I seriously doubt that the gains from "flexibility will be intended to do anything but shore up elites at the expense of job security.

      Besides there are other comparisons...

      How would you say South Korean workers and economy have benefited from such reforms?

      What Japan needs are bleeping stiff property taxes in Tokyo/Yokohama and in Kansai. Reduce the friendliness to creditors that's embedded in the law, increasing bankruptcy protections, and making illegal things like descendants being responsible for their elder's loans, or parents owing loans for dead kids, making creditors bear the full risks of fifty year loans, etc, etc.

      The waste of employee hours with ridiculous overtimes is a bad thing, but that's actually fixable by forcing employees to pay overtime for almost everyone. Either they hire everyone, or let people go when they're less productive and hire more people to shoulder the burden...

    3. Noah - it may be a real choice and Total Factor Productivity may have done better in the United States but middle class wages have flat lined in America since 1975. Changes which increase GDP but operate so that all of the increase and more go to the top 1% are not a good choice for any country.

    4. To clarify that last sentence...

      Either they hire more people to do the tasks that are definitely needed done, or they reduce the hours worked to what was actually needed, improving productivity (like that husband helping out wifey with the chores).

    5. It's very much a real choice when it comes to labor markets. When you look at not just Japan, but European and some developing nations with laws that make it extremely difficult to fire workers, you see the same thing: a bifurcated labor market. The people who find full-time regular jobs are sitting okay (aside from stuff like Japan's crazy overtime), but everyone else gets the short stick - particularly young workers and women. Italy, Spain, Germany, Japan - all of them either have long-term issues with very high youth unemployment rates, or "resolved" them when their political leadership opened the door for "contract" workers who can be hired and fired more easily (AKA Germany and Japan).

    6. Basically, the US took the option of only creating part-time or non-life-time security jobs. That seems to be it. There have been no good jobs with any security created. If you are Japanese, odds are you are better off.

    7. ": As a number of commenters have pointed out, neoliberalism vs. corporatism is not a binary choice.You can have some of each, just like you can go to the grocery store and buy some eggs and some milk. The point of this post is that there is a real tradeoff between the two"

      I dont get this at all. Neoliberalism IS corporatism! Putting the needs of the firm ahead of workers is what neoliberalism is...... especially after you miraculously start counting corporations as people too! Then it becomes;

      "All "people" have a right to influence the political process with their money"

      "All "people" have a right to low taxation"

      "All "people" have a right to low government interference with their activities"

      There is no tradeoff with corporatism and neoliberalism, they are one and the same as I see it.

  2. I think the gender equality argument is independent from the labor market flexibilization. The disadvantages of women in the labor market are a cultural choice, not an economic one.

    1. Not entirely. When getting the "good jobs" is just incredibly difficult and path-dependent in general, workers who are different than the ones they've been previously hiring are especially likely to get shafted. That means that women get hired for the good jobs in fewer numbers, and have less impact on their workplaces when they do get hired (hence the continued greater issue of sexism).

    2. I think you're still making cultural arguments. The "ones they've been previously hiring" are men and the reason for that is cultural. So women are in a cultural path-dependancy. It would be an economic reason if we say that women lack human capital because they don't get into jobs or because they don't get access to the right education. But as others here have said, the access to the "right kind of university" is a factor for men as well, because it's a cultural issue. And that disadvantage of women would not disappear in a more liberalized labor market.

    3. John S6:41 PM

      that disadvantage of women would not disappear in a more liberalized labor market."

      I believe Noah would disagree somewhat:

      "Japan's protected economy, heavily subsidized "zombie" companies, and weak corporate governance insulate it from the Beckerian free market forces that probably helped advance gender equality in the U.S. in the 80s and 90s."

    4. I've read that post now, and I think Noah has it backwards. That post, for example the quote by Shoichi Nakagawa, definitely shows that it's a cultural problem. Then Noah immediately mentions how Abe wants to fix the problem... by even more market regulation (a quota is a regulation). Then Noah is right by saying that Abe has to convince Japan itself. He needs to enact cultural change.
      I'm not saying that labor market liberalization is unnecessary, but that it will not promote gender equality unless culture changes first.

  3. Maybe right, maybe wrong, but too long.

  4. Very informative analysis. But is it a choice between neoliberalism and corporatism or between German-Schröder-style corporatism and classical state-corporatism? I think labor market liberalization is not enough for shifting from corporatism to neoliberalism although it's a small move towards.

  5. Anonymous6:58 PM

    "maintain their rich standard of living by working insane amounts of unpaid overtime."
    How do you get richer if you don't get paid?

    1. How do you get richer if you don't get paid?

      "I don't make money, I take money"

      - 2Pac

  6. John S10:04 PM

    The only time I ever enthusiastically agree with you is when you write about Japan. Keep preaching the free market gospel!

    Also, what about opening the economy to foreign competition? Isn't it strange that you never see a Korean TV in Japan, even though the two biggest TV makers in the world are right next door?

    Seems like electronics (and lots of other stuff) in both countries are way overpriced. Whatever the official tariff rates are, there seem to be serious non-tariff barriers.

    1. I almost wonder if it would have been better to go after the NTBs first, instead of hitting the tariffs the hardest from the beginning. The tariffs at least are a direct, obvious additional cost for anyone selling stuff in the country, while the NTBs are much more shadowy, and can outright make it impossible to import certain things into the country to sell.

    2. The only time I ever enthusiastically agree with you is when you write about Japan. Keep preaching the free market gospel!

      But it's not a fact I think the U.S. has gone too far in the other direction! It's difficult to be someone who thinks a middle path is optimal, because it's a lot easier to explain one side or the other, rather than give reasons why we need something in the middle.

    3. John S6:32 PM

      I think the U.S. has gone too far in the other direction!

      I think you're somewhat conflating two separate issues: labor market flexibility and the social safety net. Surely, labor market flexibility can and should be increased everywhere (even in the US), with positive gains for overall dynamism and more fairness to the lower half of bifurcated labor markets like those of Japan and Europe.

      Strengthening of the social safety net is a political issue, the optimal level of which is debatable (we would also probably do well to favor cash, rather than in-kind, transfers).

      Finally, we need to stop relying on the university system as a means to transmit skills to the labor force. More agile programs like the rapidly growing "coding bootcamps" in the US, which produce job-market ready programmers in 4-10 weeks, should instead be the norm in terms of job training.

    4. Anonymous7:00 PM

      John S

      The problem that Noah and all liberals are grappling is partially their inability to come to terms with the impact of free capital on 'free labor markets'. If I can hire Chinese slaves to build my stuff I will, and and the idea that Chinese slaves cant be taught to code in python is just a left over of the more racist "Orientals arent creative" meme that has been going on for the last 20 or so years.

      There is *nothing* that you can do that someone living in a country that is much poorer than yours cannot do. The only challenge is providing decent electricity and the initial capital to build up their servers or whatever and getting the goods over here. (And maybe a level of trust, since white people dont like the idea of the Chinese military having hardcoded entry points soldered right onto their motherboards, of course now that we know that the NSA and their British lapdogs are doing the exact same thing who knows, maybe buying those Huewei motherboards at 1/3rd the price is looking good again)

      So the real question is, who gets to be poor, the people who were unlucky to be born in third world hellholes or the people in the West -- who will continue to face relative decline in well being as the natural outcome of a 'free market' system. Now I know what Noah and the other free traders will respond, in free trade everyone benefits! Well, that is patently false. The people who lost their union jobs and the dignity of being 'middle class' are never going to get that back, they will just get cheaper Ipads. And the Chinese slaves will never be allowed to be as wealthy as the American workers of the 50s were because there are always Burmese or Laotian slaves to take up the slack once China's hourly wage breaches some kind of reasonable wealth limit.

      Now it gets particularly awkward for Noah and other liberals, unlike Republicans/conservatives who believe god decides who gets wealthy and thus have no problem with latin americanization of the US society (obviously having too many darkies in america is a different problem, but having an almost aristocratic elite is totally acceptable, even welcome to them), because they believe in equality and meritocracy and opportunity (and all these things are slipping away).

    5. Cliff4:16 PM

      So in other words, you're racist and would rather hundreds of millions of Chinese people live in abject poverty so that a few low-skilled union workers in the U.S. don't lose the "dignity" (whatever that means) of a union job. Oh, and if the cost of living goes way up, you don't care about that either.

      I'm sure the UK was way better off before the U.S. became so economically successful. Obviously having people in other countries be economically successful is bad. So F*ck the Chinese, right? The only think that matters is unions. Unions are people too!

  7. I was also thinking "false choice" as I read this. What makes it false is that it is not strictly either-or. There are all sorts of intermediate and off-axis possibilities.

    Here in the U.S. as Peter pointed out, deregulation got us huge and growing inequality and gross financial instability. What he forgot to mention is that in the aftermath of the GR we have had lousy GDP growth - three decent quarters out of the last 11, and a steep decline over the last 6.

    Let's be clear about motives. The goal of neoliberalism isn't any kind of economic improvement. It's to further enrich the wealthy elite.

    And it's working really, really well.


    1. There are all sorts of intermediate and off-axis possibilities.

      That's certainly true. But the fact that you can choose an intermediate point doesn't mean that there's no tradeoff.

      I wish we could have complete job security without negative economic and social consequences, but I just can't convince myself that this is possible,

    2. It's not an essentialist choice but a historical one - and that's an essential difference.

      The bifurcated labor market is a way of protecting existing players (workers) when competition from globalization and lowered standards in every aspect of economic life are threatening wages. There is a reason bifurcated labor markets happened when they did: historical conditions.

      That means this trend will run its course eventually and we'll discover more about the tradeoffs when the long term costs become apparent.

      Do you choose economic efficiency and globalization over democracy? That may be the real dilemma. Because of course you cannot continue indefinitely with a system that causes a decline of standard of living for most citizens without an eventual challenge - if that country is a democracy.

      Really the arguments over whether the top one per cent "deserves" their outsize share is irrelevant in the long run - in a democracy. Fairness is in fact a (much) more important value. And also there is the issue of social cohesion and stability.

      I think the choices that countries have made to protect high wage labor is political. It is like the choice gentrifying cities make to have rent control. It is stabilizing. You think Japan is showing signs of damage from labor market calcification. I suggest that given the long recession Japan has done very well in protecting living standards.

      It remains to be seen how the instability from our declining middle class will effect this country. Low marriage and birth rates across the non-professional classes are here it stay, I predict. Goodbye demographic dividend. And what else are waving adieu to?

  8. Argosy Jones10:14 PM

    (in japan)...that one first job will determine your entire future.
    But looking at the U.S., ...your first job out of college does not determine your life,

    Right, but isn't it the case that intergenerational social mobility is significantly higher in japan? Much more of your life as an American is determined by the circumstances of your birth than if you were born Japanese. Given that, I'm not at all sure the 'first job' point is an advantage for neoliberalism.

    1. Right, but isn't it the case that intergenerational social mobility is significantly higher in japan?

      Actually, no! It's about the same.

  9. John S10:34 PM

    One problem common to both Japan and Korea is that there's really only one path to "succeed" in life: get into elite university, then get lifetime job at big company. Families and children in both societies are gunning for this goal from birth (largely wasted effort, with huge social costs). A few entrepreneurs can succeed outside the system, but such examples are rare and more akin to the success of celebrities or sports stars--an unrealistic dream for most people.

    The effect isn't nearly as strong in the US. Sure, it's great to get into an Ivy, but failing to do so doesn't mean your dreams are crushed. But in Japan and Korea, it really does.

    Not sure how to solve the schooling problem, but it's a big one.

    1. No wonder their suicide rates are so high.

  10. While Japan may still be less flexible than the US, the US is heading in a Japanese direction without the guarantees or solidity that Japan has. Thus, the US has now massively reduced mobility, and getting into the right family, neighborhood, college, etc. are increasingly important, if not quite as rigid as in Japan. But the outcomes in the US remain substantially more unequal.

    Something not mentioned at all so far are the broader social supports one finds in much of Europe. Yes, those may be hard to introduce with the falling population Japan has (a deeper source of its stagnation), but that could be rectified with a more open policy of immigration, another unmentioned issue.

  11. It depends greatly on how you do it. If you greatly improve the safety net (like flexicurity), if you make a high quality college education, or advanced vocational training, much more accessible to the vast majority, if you make taxes more progressive, then liberalization should be a profound improvement -- especially for the 50% of the country that's screwed for life!!

    Honestly, it looks nightmarish to me right now.

  12. I think it's incredibly naive to think that freeing up the labour laws will lead to any improvement for those currently at the bottom of the heap. All it will do is reverse the recent legal changes that theoretically outlawed permanent contract status. The old boys will still have their jobs for life, and those who theoretically obtained regular status will just find it is worthless in their cases.

    Social conditions trump any legal niceties here (FWIW, I've lived and worked in Japan for the past 12 years).

  13. Simon5:07 AM

    Noah, you have previously said that when the Great Recession began, you felt that the USA would go through a prolonged period of low growth, low interest rates and low inflation based on Japan's experience over the past two decades.

    But there is one area where the US and Japan have diverged wildly, in their stock market performance following their slumps. The Nikkei isn't even half of what it once was two decades ago, whereas the DJIA keeps surging to new highs.

    When the US entered entered into liquidity trap territory, did you, initially at first, believe that the US stock markets would take many, many years, even decades to recover, based on your knowledge of Japan? If you did not, why did you think the US stock market would be different? And, given what you know now, why do you think it has?

    1. Please, Noah, please please please, and I am not being sarcastic nor contrary, tell me the answer to Simon's question?

      Why have we continued to enjoy a secular bull market in the U.S.A.? Why are our stock markets at record highs, given the low interest rates, low inflation and low real growth we have had, not to mention unemployment?

    2. To be honest, I'm not sure!

    3. Simon, I don't think standard economic models can answer that. I think the answer to your question is that this is one of the many benefits of hegemony--when times get bad people turn to safety and the United States rules the world culturally and militarily. The biggest guy in the room is now the only "safe partner".

      More to the point--why think your way out of a problem when you can just lash yourself to a preexisting status structure? The calories burnt solving those problems can be saved for reproduction. It's all primal.

    4. Anonymous2:14 PM

      Obviously there is no simple answer. To start down the rabbit hole, the first thing to notice is that corporate profits as a share of the US economy have increased significantly.

      Of course that only prompts the question of what legal and other structural factors in this country provided the avenue for increased corporate profits not available to companies in Japan. I would love to hear thoughts on that.

    5. John S7:38 PM

      Why have we continued to enjoy a secular bull market in the U.S.A.?

      Margin debt? Post-K and Zerohedge togetha, now you know you in trouble.

      "I sincerely believe that this environment is due, in large part, to the Bernanke Put and the idea that you 'can’t lose' by owning risk assets because the Fed will put a floor under the markets no matter what."

    6. A recession offers the opportunity to lay off expense and increase margins. Persistently low rates force a high multiple. Is there any other mystery?

  14. Michael7:09 AM

    The point raised in the comments about (unpaid) overtime is an interesting one, and an example of one of the other downsides of "lifetime employment"... Basically if you get that winning ticket in the job hunting season, and actually get your "permenant job" you're at that company's mercy from then on in. You quit or change jobs, and that's it, you've lost it - meaning they can ask you to do anything they want (forcible transfers inside Japan and overseas leaving families behind for years at a time is another example), and gods help you if a year or 2 in you realize you hate the job or industry you're in.

    You basically trade for "security" in exchange for "personal agency"...

  15. As I see it, deregulating would result in an immediate and enormous redistribution from workers to employers.

    That should give us pause to consider (a) that there would be a huge financial incentive for misleading propaganda in favor of deregulation and (b) that workers alone should not bear the pain -- employers must bear most of it. If there really are social benefits from deregulation, there ought to be a win-win solution for workers and employers.

    As in the US, I would expect the employer-funded propaganda to neglect serious proposals to directly make Japanese workers better off. A strong social safety net funded by progressive taxation, for example, could help make workers better off.

    And finally, Japanese worker loyalty would be grossly exploited as companies switch their behavior much more rapidly than worker culture does.

  16. All three choices are slavery in its many forms.

  17. Anonymous10:32 AM

    "lots of people don't have to work 20 hours a week of unpaid overtime just to afford a first-world standard of living."

    Sure. Instead, they have to work two or three part-time McJobs just to get to the first-world poverty line - MERIKA RULZ!

  18. Anonymous2:12 PM

    To think with these reforms Japan could have had the same stellar performance as Ireland or Estonia!

  19. One choice that never shows up is to weaken corporations dramatically by putting progressive taxes on their gross income. This would eliminate corporate inefficiency and encourage corporate bankruptcy. The corporate bankruptcy rate, especially for large corporations, is way too low. There should be several spectacular failures annually. It's not as if the factories and equipment vanish or the workers lose their skills just because the managers screwed up. Instead of just collecting rents, our zero efficiency banking sector could reorganize assets to built new generation companies every few years, each time increasing efficiency and workers' wages.

    (This isn't completely thought out, but it doesn't seem any less thought out than the Soviet style garbage that passes for economics wisdom these days. It just switches the bias in favor of the workers, rather than the managers.)

  20. John S6:59 PM

    One point which deserves to be made w.r.t. US vs. Japan and fairness: US median income still kicks Japan's ass. The size of the pie matters.

    USA: #4, $29,056 (PPP)
    Japan: #21, $19,564

    The annual median equivalised disposable household income for selected countries is shown in the table below. This is what a each equivalent adult in a household in the middle of the income distribution earns in a year.

  21. Michael David Berger8:05 PM

    Noah, this portion of your commentary sticks out to me for further examination:

    I think that Japan's labor-protectionism has caused deep unfairness to persist in Japanese society. Japan is still one of the lowest-ranking countries in terms of women's equality. Go into a lot of Japanese companies, and you still see the men climbing the corporate ladder while the women serve tea. That cozy boys' club is protected by the government, which makes it incredibly difficult to fire the mostly-male "正社員" (lifetime) employees, while making it incredibly easy to fire the mostly-female "契約社員" (contract) and "アルバイト" (part-time) employees.

    Is it labor-market rigidity that has caused women to be shuffled into 'non-regular' employment, or is it not a consequence of 'societal norms' instead?

    (I'm using the term 'societal norms' in a very broad sense here, one not meant to be gone into too deeply for the moment.)

    Consider for a moment, that the majority of women in Japan generally do not enter four-year post-secondary programs of study, nor do the slim percentage who do so generally go onto graduate programs.

    Does this not suggest to you that - rather than the lifetime employment system - the issue preventing more women from being in the workforce is an issue of societal expectations?

    Not to mention the other issues contributing to the low participation rate of women in the workforce. Such as those surrounding day-care (not the lack of facilities, but the lack of child-care workers), the tax penalties for two-earner households, and so on and so forth.

    Which is not to say that the lifetime employment system is a good thing. It certainly was at one time, and it may actually still be so - I do not know.

    But if we're actually looking to help Japan, would it not be better to look at the most effective solutions to this and other issues, rather than throwing neoliberal complaints about Japan's unique - and labor-friendly traits - at the walls and seeing if any of it sticks?

  22. It seems a better "natural experiment" would be rather to compare USA post '80s vs. USA pre '80s. Perhaps around that time we can find productivity and marginal ROI kinked upwards?

  23. Hi Noah,

    I've lived in Japan for the past 14 years and wonder how your take on the "non-liberalized labor market" relates to non-enforcement of labor laws. On paper, companies are not supposed to discriminate against females in employment and yet they very much do. Many large companies follow labor laws around overtime work, but smaller companies often do not. In general, you have a quazi-non-liberalized labor market in which many of the protections which are afforded to workers on paper never pan out in practice. If labor laws were actively enforced, would this be detrimental to the economy? Seems to me it would result in more workers being pulled into the work force (because you couldn't get away with simply having employees work for nothing...the infamous "service overtime")and a much higher rate of women in the workforce. As opposed to getting rid of the protections Japan already has, wouldn't fully enfocing the laws on the book also lead to a real payoff in productivity (workers wouldn't hang around the office until late at night to look busy because everyone else is hanging around the office), hiring (it would be cheaper to hire more people than to pay people for the actual overtime they work), and female participation in the workforce?

    Just wondering,
    (in Osaka)

    Just wonderig,


    1. Actually that is an incredibly good point, and the subject of a big future post... :-)

    2. Anonymous5:42 AM

      Hi. I live in Japan, not Japanese but I am a fluent speaker and have lived in Tokyo for 12 years so far. I have worked as an independent contractor, a contract employee and as a full time employee (currently). I have Japanese colleagues and friends that have done all the other forms of employment. Between us I believe we have a lot of shared experience of working in Japan. There is, as pointed out above, a huge difference between laws on the books and actual enforcement. There is also a vastly different work-life balance and also the imbalance between the sexes. All this parameters makes it very difficult to compare jobs and employment between Japan and abroad.

      I also find problems in the term "Japan". As you probably know, there is a huge difference in Japanese work life and employment between Tokyo and virtually the rest of the entire country. When I compare employment in Tokyo with the situations of my friends in rural Toyama prefecture or on the Island off the coast of Niigata, I often find it hard to imagine we live in the same country.

      Another huge difference, that makes comparisons between Japan and the US (why those two countries that have nothing whatsoever in common should always be compared is beyond me) impossible is the simple fact that Japan has had a minimal population increase over the last two decades, there are (virtually) no natural resources, Japan is an export based economy and people here actively embrace the ideas of harmony and equality (take as an example the 2000 USD water melons, that is how the trickle down economy should really work).

      Sorry if I sound negative or incredulous, but we are getting perplexed by all these foreigners saying we should do this or we should do that, especially people from cultures/economies that are in even worse shape than ours. This sort of "they ought to...." talk is just used by air headed local politicians to pick and chose from to fit whatever ideology they are currently nursing.

      No foreign journalist or economist can possibly have missed that Abe (and his wife) is hardly of sound mental or physical health.

      Not meaning to come down like a ton of bricks, but we need more consideration of the real facts on the grounds before taking into consideration the opinion of foreigners. Surely you know of the honne/tatemae concept? It applies to everything. Everything has a front and a back in Japan.

      If you want to compare Japan to other countries, a more reasonable subject might be ROK and Japan, or even ROC and Japan.

      Best regards, The Little Salaryman in Tokyo

  24. There is a third choice which allows liberal labor markets and still protects the middle class. Tax policies which prevent wealth concentration worked well in this country for many decades. When ultra-high income is taxed at high rates the corporate executives no longer have strong incentive to strip wealth from the economy. A strong social safety net also provides a floor for wages. Property tax and inheritance tax with reasonable individual exemptions prevent the richest individuals from developing an inter-generational permanent wealthy class.

    1. Yes. But I think of that as compatible with neoliberalism.

    2. There is very little evidence to argue for example, that tax policies, like very progressive income taxes pre 1981, do any sort of income redistribution or "prevent wealth concentration" when you look at the % of GDP revenue data.

      When you talk about "ultra high income" are you talking about personal income or "corporate profits?"

      Frankly, I want to scrap the entire "welfare" mess for a negative income tax, and scrap the minimum wage, since it is largely non binding. The negative income tax will provide the floor without the effect of increasing LOW SKILL unemployment (before anyone talks about "no to little effect on unemployment" studies, when we are already talking about a largely non binding price floor).

      But your recommendations have all perverse incentive effects, which is why they have been changed over the years, they encourage offshoring, and simple tax evasion. Although, a land tax would be nice, since you can't offshore that.

  25. Isn't part of the problem that 'neoliberalism' is used here to conflate two, possibly more different sets of 'villains' as opposed to individual policies? That's what Ames' near-apoplexy tells me - commentators have accidentally triggered his 'thoughtcrime' button. The substance of the policies, the realities of Japan's economy, all are irrelevant, as Ames would have offered the same response to such policy themes being advocated anywhere, at any time.

  26. Anonymous6:51 AM

    To moderators: we are surprised at your having deleted our comments. Since other anonymous comments were not deleted, and our tone was reasonable, we have to assume you did it merely to silence unwelcome opinions. One comment pointed out that the first job in the US is also extremely important, and especially that aspirants 'good jobs' in finance, law and government have to be on the track since grade school, with these desirable employers increasingly hiring only out of a few top colleges. Another pointed out the pervasive and misplaced attitude of intending to 'help Japan' and the third inquired as to the advisability of forcing women into the work force.