Unemployment Rate Down to 3.7% in June

5 Responses to “Unemployment Rate Down to 3.7% in June”

1. Ivan Kitov on August 2nd, 2007 3:56 pm

   I’ve just finished analysis of unemployment in Japan. It looks
   it has to drop down to 3.5% this year and then will come back.

   http://inflationusa.blogspot.com/2007/07/evolution-of-unemployment-in-japan.html

   As a complimentary study, I also calculate inflation in Japan for the next 45 years.

   http://inflationusa.blogspot.com/2007/08/prediction-of-cpi-inflation-in-japan.html

   Believe you or not, the prediction linear relationships work well the last 25 yeras.
   SO, it is very likely they will work the next 25 years.

2. Edward Hugh on August 2nd, 2007 7:27 pm

   Hi Ken,

   You need to be very careful in interpreting this data. Remember, you have to build in the demography. Unemployment is trending down in Italy, Germany and Japan for age related structural reasons. You cannot simply apply neo-classical type tomorrow is like yesterday here as Ivan (above) would wish to do.

   Claus and I had some very interesting exchanges with Richard Katz on all this on the NBR forum. I at least am pretty clear now about what is happening (and the parallels with Germany are very striking). I will try and knock up all the data I have into a post as soon as I find the time. I wouldn’t be expecting wage inflation any time soon though. MS’s Robert Alan Feldman had a good post about all this a few weeks back too. You need to look at the volume of people who are retiring from their “lifetime” job, and then the growth of part time working. Ironically, the Bloomberg-type commentators may be reading all this back to front, since with fewer younger people, and more of them getting more education (again see my NBR posts on this) the relative wages of young people may well go up.

3. Ken on August 2nd, 2007 7:41 pm

   You need to look at the volume of people who are retiring from their lifetime� job, and then the growth of part time working.

   Certainly, we’ve been looking into and writing about that here for months now. I think I was taking for granted that it’s pretty common knowledge at this point…

   There’s no doubt that overall wage inflation will be slowed as more and more young people are hired, since they’re cheaper. Same goes for the retirees who go from (bonus-earning) salaried positions to part-time contracts. At some point, though, the maximum number of them will have been hired, and there will be fewer of them, and then…

   You bring up a great point behind the lie of the lifetime employment system.

4. Edward Hugh on August 3rd, 2007 11:48 pm

   Hi again Ken,

   “The question to ask now must be: with the unemployment rate approaching what might be its lowest possible levels, will we start to see wage growth and increases in consumer prices?”

   Well this is what I used to think, since it is after all what standard NAIRU type theory would tell us, but obviously we aren’t seeing wages go up as labour markets tighten in either Japan, or Germany or (to any significant extent) in Italy. Italy is perhaps a litttle different, since they are having some inward migration worthy of mention.

   But then Robert Alan Feldman mentioned the gap between Teinen and Intai, and how the number of workers in this group is set to rise for every year between now and 2011 due to Japan’s earlier baby boom. Doing some back of the envelope calculations he estimated that the availability of workers in this group would push wages and salaries down some small quantity over the entire period, but that then, when this process had run its course, wage push inflation might start.

   But even this is too simple. The most important issue is that we really have no idea what Japan’s sustainable trend growth rate is at this point. I suspect it may well be much lower than most imagine. The possible productivity impact of population ageing tends to lead me in this direction.

   Now we do know that Japan’s economy is largely export driven, and that this is likely to remain like this. What this means effectively is that Japan’s trend growth isn’t determined in Japan, but elsewhere, and is pretty dependent on the rate of expansion in the global economy and the growth of world trade.

   So long as these expand at the present sweltering pace, then Japan’s economy can grow at or around the present rate. But for just how long exactly will this be? Basically know one knows.

   At some point the pace will clearly slow, and when it does slow Japan will be back where it was before, and the rate of permanent, full-time, job creation will turn negative (or should I say even more negative than it is right now, since looking at the data a bit it seems that these jobs have been shrinking and not growing since the late 90s). So again, it is hard to see wage push in this context.

   Also you have to take in the rate of substitution of capital for labour. One might anticipate that Japan, with evident skill shortages in some areas, will be particularly sensitive to this.

   So basically I’m not sure wage inflation is all that likely in the foreseeable future.

   Obviously, in the longer, longer term, all sorts of issues arise, like systematic dis-saving. If and when we get through to that - and this won’t be tomorrow, or the day after - then all sorts of issues are posed, like Japan having to pay a risk premium to finance its government debt, and the deflation situation could evidently go to the flipside of hyperinflation, but this is all very, very speculative, talking about a hypothetical future in a once upon a time land.

   Incidentally Ivan, if you are still reading at this point, maybe I owe you an apology, since looking at what you have done, the result is not uninteresting, although, for the sorts of reasons I am arguing (especially the dependence of Japan’s GDP growth rate on the global one) methodologically I am not completely convinced by your result.

5. Ken Worsley on August 4th, 2007 1:27 am

   The most important issue is that we really have no idea what Japan’s sustainable trend growth rate is at this point. I suspect it may well be much lower than most imagine.

   I agree much with the first sentence, though it’s hard to know what to think about the second without know what figure represents what ‘most imagine.’ Do you think unemployment could dip below 3.2, or even below 3% without seeing wage inflation?

   The two may no longer be connected much anyway, given the increase in the number of contract workers and those retiring and coming back part-time. The Yomiuri ran a piece today on how Japanese women are still basically low wage workers in the eyes of many firms (http://www.yomiuri.co.jp/dy/national/20070802TDY13001.htm).

   Although exports have grown as a percentage of GDP, we still see something like 55% of GDP from domestic consumption, and I wonder how much risk the economy will be able to stand by relying further on the stability of overseas buyers.

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