I wrote last November that the success of Abenomics in Japan would depend on raising labor’s share of income faster than inflation. Basically real wages need to rise. I would now add that real wages need to rise faster than productivity. The key is to raise effective demand with healthier consumption demand.
So we see an article in the WSJ today that the Virtuous Cycle of Abenomics is Spinning more slowly. Why? What is happening?
“… a string of recent data — from soft consumer spending, tepid wage growth, and a newly muddled jobs picture — offer a sobering reminder of the challenges that remain before Prime Minister Shinzo Abe…”
The article points out that labor demand looks to be peaking. Unemployment has recently risen. There is a decline in permanent work with a rise in non-permanent work. The prospects for a significantly higher labor share are low.
The article did mention that profits in Japan are good.
“The signs aren’t all bad. Companies are expected to report robust profits over the next couple of weeks, suggesting more potential for hiring and higher wages. In anticipation of such results, the Nikkei Stock Average has rallied in recent days, trading at a six-month high.”
More potential for hiring and higher wages??? Firms are competing on the international market. It is not likely that those profits will find their way into the hands of labor in Japan in any significant way. That should have already happened. And there is little sign it is happening now.
In all, I measured the success of Abenomics upon raising labor share. So far, wages have not risen enough for Abenomics to eventually succeed in its goals.