apan’s economy contracted last quarter and export growth slowed for a second month in August. The changes needed to turn around the world’s third-biggest economy face apparently unsurmountable roadblocks. “First of all, labor reform,” says Robert Feldman, chief economist at Morgan Stanley MUFG Securities. “We have a lot of talented people in the wrong jobs at the wrong wages. The reason is that we have laws that discourage labor mobility.” While he has promised to tackle the regulations blocking economic growth, Abe has so far only tweaked labor market rules, such as those on temporary work. What is needed is flexibility to make it easier for companies to fire workers in mid-career in exchange for severance payments, according to Martin Schulz, senior economist at Fujitsu Research Institute. “This is the hardest thing to do,” says Schulz. Abe is reluctant to erode the tradition of lifetime employment. A more flexible labor market would persuade firms to tap their huge cash reserves, giving them access to skills at reasonable prices, Feldman explained. However, Abe’s pressure on companies to invest and pay higher wages has not borne tangible fruits. Abe may sooner deliver a trade deal with the European Union, pending for months, or try to free up the energy market, to lower costs for consumers and businesses, than face up to the labour market and private sector challenges. He has set himself an ambitious target: to expand the economy to 600 trill yen ($5 trill), compared with the current nominal GDP of 500 trill yen. His new priorities: bolstering support for families with children and those who care for elderly relatives, in the hope of drawing more women into the labour market. Initial achievements –drastic monetary easing that caused the yen to drop, boosting the big exporters– are in danger without serious structural reforms.
Can Abenomics Transform Japan’s Economy Long Term? || USA Network News