In 1987, Donald Trump, who was then a flamboyant millionaire ran full-page ads
in the New York Times, the Washington Post, and the Boston Globe criticizing Japan
for its trade imbalance with the United States.
Japan’s economy was then the envy of other nations,
rising from the ruins of World War II to become the world’s second-largest economy.
Many Japanese seem to be so busy from Monday to Saturday making electronic goods,
there's only one day left on which they can actually go out and buy them.
All that came to a halt in the 1990s when it started experiencing a prolonged recession
which economists have dubbed The Lost Decade.
In the years since, Japan has experienced sluggish growth under a "revolving door" of prime ministers.
Despite attempts by Shinzo Abe, who was Japan’s longest-serving Prime Minister,
to revive the country’s economy, poverty is on the rise.
So, can Japan escape its prolonged economic slump?
After about two decades of economic stagnation, Abe’s second term as prime minister
brought hope that he could steer the country, out of recession.
By then, China had overtaken Japan to become the world's second-largest economy.
To tackle the stubborn economic stagnation and low inflation, Abe introduced his
signature economic policies known as “Abenomics.”
These came in the form of monetary easing, fiscal spending and structural reforms
of Japan’s labor force, which was shrinking and aging.
Japan has been facing a population decline since 2011 because of a low birth rate.
In 2019, there were around 500,000 more deaths than births, as the number of babies born fell by 5.9% .
With an aging population and a shrinking workforce, unemployment levels have been low.
Despite a tight labor market, the earning power of Japanese workers has remained stagnant.
In fact, the average wages in Japan has remained below $40,000 since 1991
unlike other developed countries such as the United States and South Korea.
This has its roots in Japan’s peculiar employment system,
which is built on a set of principles to promote loyalty between employers and employees.
Employees sign long term contracts with companies and are motivated
to remain because of a wage structure that prioritizes seniority over merit.
This practice, known in Japanese as Shushin Koyo, dates back
to World War II and has become ingrained in the Japanese culture, especially in larger companies.
While this scheme made sense in the post-war period,
when there was a shortage of skilled labor,
this relatively stable but rigid employment system led to
an emphasis on job security, rather than productivity and performance.
As a result, Japanese firms were reluctant to increase
employees’ salaries, especially during economic downturns,
because they were expected to retain their employees for a long period.
Japan’s aging population also meant that senior
executives were unlikely to move anytime soon,
providing little to no career progression and wage increases for younger employees.
To address these labor woes, Abe tried to reform the
country’s labor system, such as relaxing immigration laws,
easing Japan’s brutal work culture and encouraging more women to join the workforce.
While Abe managed to increase female participation in the workforce
to an all-time high many were on low-paying odd jobs.
Among senior and leadership positions, only 15% were held by women,
while Japanese women earned about half of what men got on average.
Besides deeper cultural issues in a patriarchal society,
the lifetime employment scheme also discouraged firms from
hiring women into the workforce full time to avoid commitment costs such as pension funds.
To maintain their competitive edge, some Japanese companies started
converting their full-time employees to part-time workers.
In 2019, the number of non-regular workers rose by 2.1%,
outpacing the 0.5% growth among regular employees.
Despite record employment under Abenomics, Japan’s poverty rate
is the second highest among the Group of Seven nations at 15.7%, and above the OECD average.
While large Japanese firms have benefitted under Abenomics,
buoyed by a weak yen and a booming stock market,
these corporate profits did not trickle down to households.
Abe’s best efforts to reverse the tepid economic growth, including
pressuring the country’s central bank to adopt unconventional measures
in the form of asset purchases and yield curve control, have produced mixed results.
With the Covid-19 pandemic crippling its economy further,
Japan is quickly running out of options to boost its economy.
In the second quarter of 2020, its GDP shrank by 28.1%.
The country’s next prime minister, Yoshihide Suga, is likely to carry on where Abe left off.
Abe may be gone, but Abenomics appears here to stay.
Whether it will lift Japan out of its decades-long doldrums
and reverse the poverty trap remains to be seen.
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