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Japan Does Not Need More Workers

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Friday, 21 December 2012 05:50

Towards the end of an article that discussed efforts by Japan's government to boost the demand for workers by generating inflation the NYT told readers:

"The country has an aging, shrinking population. It needs more workers."

Umm, no. It does not make sense to say that Japan is suffering from inadequate demand, which means that it has more supply of workers than demand for workers, and then to say it needs more workers. Up is not down.

There is a well-funded effort in the United States to try to place demographics at the center of economic policy debates. Countries are growing older. This is not new, they have been growing older for many decades. Fans of arithmetic know that the increase in living standards that result from even modest growth in productivity swamps the impact of demographics in lowering living standards. Here's the story for the United States over the next 23 years -- the peak pressure associated with the retirement of the baby boomers. 

alt                                Source: Author's calculations.

And remember after 2035, the demographnics change little for the rest of the century, but productivity keeps growing. In short, the aging story is a joke.

Comments (4)Add Comment
...
written by skeptonomist, December 21, 2012 9:40
And again the fraction of people of working age does not change very much, and will be about the same in 2050 as it was in 1900:

http://www.skeptometrics.org/RealDemographics.html

Demographics do dictate that more money must be spent on the elderly as compared to children, which implies a shift from taxation at the state and local level to the federal level. If demographics were a real and not a phony issue the media and politicians would be talking about how this shift should be done.

Polls indicate that people are willing to increase tax rates to avoid cutting benefits, and there are easy solutions to any real shortfall in SS revenues, such as expanding the tax base - why is including capital gains, interest and dividends in this base never mentioned if the media and politicians are serious about preserving SS?

And furthermore, why are people even arguing about methods of linking SS benefits to the CPI, when this freezes the standard of living of retirees at the level when Congress last set absolute benefit levels? They should really be linked to (averaged) nominal GDP per capita. This could be corrected for the fraction of working people. The current method denies to retirees the benefits of productivity increase that Dean shows.
Inequality?
written by Nick Batzdorf, December 21, 2012 2:00
Please convince me that rising income inequality doesn't negate the benefits of increased productivity.

(This is a legitimate request, not an assertion about inequality!)
Please, please look at the macro
written by Lrellok, December 21, 2012 4:39
Prof, I cannot urge you strongly enough to adopt macro foundations. A policy proposal can and should be judged based upon it predicted outcome. This well funded effort is not different. The predicted outcome of flooding a market with supply during a surplus is to drive prices through the floor. Thus, this whole effort, in the united states, japan, and everywhere else, to argue that an increase in the supply of labor is necessary is nothing more or less then an effort to tank the price of labor below market equilibrium by exacerbating an already large surplus of labor. They are deliberately and willfully seeking to make inequality worse.

If you swing a hammer at a mug, one of two things is possible. Either you are trying to break the mug, or you do not understand the effects of hitting a mug with a hammer. That is the basis of the theory of "Macro foundations" i am currently working on.
Inequality is the Problem
written by Dean, December 22, 2012 8:27
Nick,

rising inequality has wiped out the gains from productivity growth. That is why we should be focused on inequality and not waste time with this demographic nonsense. That is where the money is.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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