22 April 2008

The Japanese Labor Market - Integration into the Capitalist Global System

Our author Barbara Kits prepared an excellent analysis of the Japanese labour market.

“The [Japanese] economy experienced a major slowdown starting in the 1990s following three decades of unprecedented growth, but Japan still remains a major economic power, both in Asia and globally.” (CIA Factbook; Japan)

During the 20th century, Japan’s economic performance has been quite remarkable. First of all, there was the ‘economic miracle’ after the Second World War: post-war Japan was able to rebuild its economy in less then 2 decades. Second of all, Japan’s unemployment rate has been at approximately 2% for almost 3 decades, a very low average compared to other OECD countries, and thus often referred to as the ‘unemployment miracle’.

However, these miracles started fading away when Japan stepped into a ‘Lost Decade’ in the 1990s. The recession that prevailed took forms that had thus far been unseen anywhere in the industrialized world of capitalism. Interest rates, to name but one variable, fell to nearly 0%, while the ‘Unemployment Miracle’ seemed to end. The ‘Lost Decade’ of Japan was caused by the burst of a bubble in the stock market and the consequent fall into a liquidity trap. These developments also proved that the Japanese labor market system was not resistant to large negative shocks in output: as a consequence of the liquidity trap, Japan’s unemployment rate rose to a record high in comparison to the past 40 years, and only recovered once thorough restructuring of the labor market had taken place.

In the following, an analysis of the Japanese labor market restructuring following the ‘lost decade’ will be provided, with the aim of assessing the current stance of the Japanese economy in the capitalist world system. The policies currently in place will be examined in connection to this, and will be assessed in terms of their effect on the economy in the future. The conclusion of the report consists of an advisory note on the future use of macro-economic policies of Japan.

To read more: please click here.


The paper is based on:
“The Japanese Economy: Problems and Policy Solutions” (unpublished),
Zahra Biniaz, Petulia Fung, Barbara Kits, Delphine Maho, Hsieh Lea Tan

1 comment:

Shalom Hamou said...

The Yield Curve of Keynes' Liquidity Trap

The liquidity trap is usually defined as a zero lower limit of short-term interest rates.

However you can define a yield curve of the Liquidity Trap where you have a positive lower limit of long-term interest rates.

If the Market does not reward the investor for interest rate risk at a given maturity he then prefers liquid assets over long-term assets of that maturity: it is what Keynes' termed the liquidity preference.

When a yield curve is steep the Market prefers long-term assets over short-term assets, when the yield curve is inverted the Market prefers short-term assets over long-term assets.

The normal curve marks Market indifference between short-term and long-term assets.

The Yield Curve of Keynes' Liquidity Trap is simply the normal yield curve for 0% yield on very short term-assets.

The traditional zero lower limit is simply the short part of the Keynes'Liquidity Trap Yield Curve.

My model says that, when long-term rates get to their positive lower limit, banks stop transforming short-term liquidities into long-term investments of that maturity.

The phenomenon soon propagates to the entire longer part of the curve.

Then central banks, in order to increase long-term investments, the conduit of money creation, is constrained to lower short-term rates to zero without being able to generate significant long-term investments.

What makes Keynes' Liquidity Trap so terrible is that it stops the money creation.

Because of Greenspan Conundrum it is highly probable that long-term rates will reach the longer part of the yield curve of Keynes' Liquidity Trap before short-term rates fall to zero.

My model of the yield curve never gave a signal of a systemic collapse during the recent credit crisis: it has always predicted that the Federal Reserve had sufficient room to rescue the market and the economy.

Shalom Hamou
Independant Yield Curve Adviser