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People Are Retiring Leads to Downward Pressure on Wages

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Friday, 27 May 2011 04:52

That's what Marketplace radio told listeners this morning in reference to to Japan. It explained Japan's deflation this way:

"The underlying problem in Japan is that the country is getting older. More and more people are retiring so there's downward pressure on wages."

Let's see, retiring workers reduce supply, therefore wages fall. Hmmm, lower supply therefore lower wages. What are we missing here?

Actually, the larger point of this story, that the inflation caused by higher prices for energy and other unusual costs last month, was a good thing for Japan, also doesn't make sense. Japan will benefit from a situation in which there are broad based wage and price increases that erode the real value of debt and reduce real interest rates. Having the price of a small subset of goods rise (especially imported goods like oil) is bad news since it erodes workers' purchasing power.

Comments (1)Add Comment
...
written by Bob Lucore, May 27, 2011 9:09
The minute I heard this I said, uh-oh, I hope Dean is listening...

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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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