Economic calcification, Japanese edition

December 7, 2009

Japan’s labor market is desperately troubled. For years, the number of temporary workers has been on the rise as Japanese employers find it harder to afford full-timers. Like the rest of the Japanese economy, the labor market needs the flexibility to deflate. But the government won’t allow that to happen. The latest example is a proposal to ban manufacturers from hiring temporary workers (Otsuma/Hagiwara, Bloomberg):

The government is preparing legislation “that will stop manufacturing firms from employing temps and encourage them to hire full-timers,” [Health and Labor Minister Akira] Nagatsuma said yesterday on a business program….

Japanese companies have cut jobs to remain profitable in an economy struggling with deflation and as a strengthening currency erodes export earnings. Unemployment [recently at 5.1%] rose to a postwar high 5.7 percent in July…

Effectively, the Japanese government is trying to put a price floor underneath the labor market. But banning “temporary” work won’t help full-time employment; it will just mean less employment overall.

Japan’s plan is not unlike measures being employed to prop up the U.S. housing market. The problem with price floors is that in preventing markets from clearing, they prevent transactions from happening. Fewer transactions means less economic activity. It means fewer jobs.

price floor

The numbers in the chart are for illustration purposes only, but the numbers from the Japanese labor market demonstrate suggest precisely this kind of economic calcification:

The proportion of [Japanese] college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last month, the steepest drop since the survey started in 1996.

Younger folks supporting Obama’s various stimulus measures don’t appreciate the negative long-term consequences for their employment prospects.

Stimulus and/or regulations that direct capital to zombie employers/employees are just as destructive as bailouts to zombie banks. Both deny capital to those that COULD put it to more efficient use.

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In other Japan news: Japan to give JAL $7.7 billion loan guarantee (Kajimoto, Reuters)

Japan’s government plans to guarantee about 700 billion yen ($7.7 billion) in loans and other funds provided by financial institutions to keep Japan Airlines Corp. afloat, the Nikkei business daily reported….

The plan is aimed at keeping JAL from having to suspend scheduled flights due to a shortage of operating funds, Nikkei said.

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