Essay about Japanese Malaise

793 Words May 29th, 2013 4 Pages
THE IMPACT OF SUPPLY-SIDE FACTORS ON JAPANESE ECONOMIC STAGNATION



















Japan’s ongoing economic stagnation for decades has provoked wider debate in the US. Along with the raise in unemployment rate and weak industrial production relative to other major industrial countries, the economic malaise in Japan was described as a lost decade. Studies have shown that Japanese economy suffers of severe problems that are not only cyclical but also structural in nature. In this paper, I will shed light on the major cause of the prolonged slowdown of the Japanese economy by analyzing the impact of supply-side factors, including the decline in total factor productivity (TFP) and Japan’s aging population.
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In the 1970s-1980s, total fertility rate in Japan fell below replacement levels, resulting in young labor shortage. Of the sharp slowdown in real GDP growth since the early 1990s, half is contributed by a drop in labor input. Between 1983-1991 and 1991-1998, the Japan Industrial Productivity (JIP) Database reports that Japan’s real GDP declines 2.69 percentage-points. Fukao, Inui, Kawai, & Miyagawa (2004) demonstrate that the combined effect of 0.79 and 0.25 percentage-point slowdowns in growth of working-age population and in labor quality have reduced Japan’s balanced growth rate by 1.04 percentage points.
In hopes of placing Japanese economy back on a stable growth path, my suggestion is to make adjustments that affect job securities among employees, increasing economic certainties among married Japanese couples and stimulating their fertility decisions. In addition, women at their reproductive age should be supported in taking childcare leaves. Substituting labor-saving technology and better utilizing older workers are possible ways of coping with Japan’s labor shortage. To revive the economic growth, regulatory changes allow banks to classify restructured Small- and Medium-Sized Enterprises’ (SME) loans “normal” if a company demonstrates its ability to make the loan perform from five to ten years.
Low productivity growth and shrinking working age…