Wages in Japan: Behind a Pay Wall

Japan is struggling to figure out how to raise wages.  Economist's Olivier Blanchard and Adam Posen think that Japan should increase nominal wages, along with other benefits, by 5-10% "by fiat." However, since 1995, overall wages have only increased by 0.3%.  Japan's prime minister has been working on increasing wages.  He was able to increase minimum wages, and they will increase again on October 1st.  However, these increases have been very small and have only affected a small portion of the workforce. 

Japan's shrinking population is getting older, so the costs of pensions and medical care are large--1/3 the increases in wage are absorbed by social-security payments.  The article states that it is odd that it is so hard to increase wages because of the tightening of the labor market and the population. 
"One reason is that some industries that need to raise wages are unable to. Public nurseries, for example, are desperately short of staff yet cannot increase pay because of government rules."

"...Inequities, and the divide between traditional, regular “salarymen” jobs and non-regular workers, distort the labour market. Regular workers are more willing to trade higher wages for job security."



http://www.economist.com/news/finance-and-economics/21707221-raising-japanese-wages-harder-it-looks-behind-pay-wall

Fed's Kashkari sees cure for slow growth in immigration, tax reform

As of today, the Federal Reserve is powerless and cannot do much. A top Fed official argued in a 5100 word essay how US can achieve faster economic growth through non-monetary policy approaches such as immigration and tax reform. Minneapolis Federal Reserve Bank President Neel Kashkari noted that the U.S. labor market is "closer to normal" but that inflation is still below the Fed's 2-percent target and economic growth is well below precrisis norms. "Kashkari sketched out a wide range of possible reasons for slow U.S. economic growth, concluding that the most likely causes are an aging population, psychological scarring from the financial crisis that makes households and businesses unwilling to take risks, and "lackluster technological innovation." And to address those problems, Kashkari says that, the government could boost spending on basic research, rebuild worn-out infrastructure, streamline regulations and the tax code, and otherwise take small steps with little downside risk and plenty of potential. "Another promising policy is immigration reform, especially for high-skilled workers," Kashkari wrote. But government, and the Fed, should be careful of policy change that poses too much potential for harm, he also argued. Raising the Fed's inflation target is one such approach, he suggested; massive government spending is another. "I am skeptical that a large-scale expansion of government spending by itself is the best way forward, since larger fiscal deficits will lead to higher expected future taxes, which could further undermine private sector confidence," he wrote.

http://www.cnbc.com/2016/09/12/feds-kashkari-sees-cure-for-slow-growth-in-immigration-tax-reform.html

Fed leaves rates unchanged

In the Federal Reserve officials' most recent meeting (September 20-21), they decided to put off rate hikes until a later date. The committee said that they are still encouraged by the current economic growth, however they want to wait for continued upward trends in the economy before implementing higher rates. There was quite a division in the votes, about the rate increase, among the FOMC (Federal Open Market Committee) more so than in previous months. 'Most people were expecting some version of this, the idea that they weren't actually going to hike rates but they didn't want the notion that the Fed is never going to hike,' said Lewis Alexander." The main underlying reason for the hesitation in policy change is the upcoming election. The FOMC's next meeting is November 1st and 2nd, right before the election, so there probably will not be any changes again until the last meeting of the year held December 13th and 14th. 

http://www.cnbc.com/2016/09/21/fed-leaves-rates-unchanged-in-september-meeting.html

Activists Push for $15 Minimum Wage

With the upcoming presidential election approaching nearer, Donald Trump and Hillary Clinton have been pushing their agenda regarding their economic policies. One issue in the limelight is the presidential candidates' stance on minimum wage. Both Trump and Clinton seem to be in agreement that the minimum wage should rise, but none seem as aggressively interested in the $15 rate compared to activists who strive to make that a realistic goal from the Fight for 15 organization.

Terrence Wise joined Fight for 15 because a reality check that hit him when he was homeless for the second time with his fiance and three daughters because his fiance became ill. Many people in the Mid-Atlantic region work minimum wage jobs their whole life living paycheck to paycheck trying to make ends meet and when you can't work, you fall behind. Wise, 37, is currently employed at McDonald's and Burger King. After 20 years of experience in the fast food industry Wise is still only making $9 an hour at both jobs, no benefits, vacations, or paid time off.  Keep in mind, federal minimum wage is $7.25. For these reasons, Wise has not seen his mother in 10 years or a dentist in 18 years.

Although pushing for a living wage sounds philanthropic and beneficial for society, there are many factors to be considered when creating such a policy. Raising minimum wages will cause small businesses to raise prices and cut employees. Robert Mayfield, franchise owner of nine Dairy Queens in Austin, Texas is against any government interference in the market. Businesses need to cut costs and many tasks are already being automated by machines. A rise in minimum wage would cause some more unemployment to businesses like Mayfield's. Despite this, Mayfield is in fact paying efficiency wages because his starting wage rate is $12. Doing this attracts more qualified laborers which is crucial to small businesses.

Policymakers need to carefully consider the pros and cons of raising minimum wage before they initiate any economic policy effects. Establishing a living wage is not as simple as raising minimum wage.

http://0-web.a.ebscohost.com.dewey2.library.denison.edu/ehost/detail/detail?sid=21652a6d-9e62-4c21-bd19-6b75a9898fc6%40sessionmgr4010&vid=0&hid=4207&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=6XN201608132003&db=nfh

More Weeks of Unemployment Benefits Don't Lead to Better Paying Jobs

The state of Florida offers less generous jobless benefits for fewer weeks than allotted in most states. The maximum length of unemployment-insurance benefits is tied to the unemployment rate in the state. So this year the insurance benefits last for just 12 weeks, compared to the 14 weeks last year. However, most other states provide the newly unemployed support for 26 weeks (6 months). In addition to the length of support being shorter, the benefit payments are also about 30% smaller. So how is this affecting the people of Florida? They are finding that it is simply a trade off. The unemployed are having to face a lot more hardships in the beginning, but they end up getting back to work more quickly. The JPMorgan Chase Institute released data that shows they are finding jobs faster and those jobs pay as well as positions found by workers in other states. In order to deal with the effects of the shorter duration and smaller payments, after losing their jobs, Florida workers are cutting back their spending by 13%, while people in the other states are only cutting back by 5%. Floridians who had been on unemployment rolls are starting to see their incomes rise again just four months after receiving their first payments. On the other hand, people of other states that receive six months of payments, are not seeing an increase in income until 7 months after their first payments.

We have studied in class how reducing the duration of unemployment benefits affects frictional unemployment. We also said that people tend to wait until the last minute- right before their insurance is going to expire- to start looking for jobs. This statement seems to correlate with the information discussed in this article about how people don't start showing an increase in their income until 7 months later. The fact that the newly unemployed are receiving less benefits and for a shorter amount of time shows that this pushes people a little more and gives them that incentive to go out and start working again.

http://blogs.wsj.com/economics/2016/09/15/more-weeks-of-unemployment-benefits-dont-lead-to-better-paying-jobs/

Fed Doesn't Raise Interest Rates

The Federal Reserve just adjourned a two day meeting with a 7-3 vote to leave interest rates unchanged for the time being. Janet Yellen, the Fed's chairwoman, acknowledged the economy's progress, claiming the decision did not indicate a lack of faith in the economy's growth, but rather that she saw it having "a little more room to run than might have previously been thought".  These remarks are in line with the relatively strong consumer spending and labor force participation, but inexplicably weak business investment that the US has seen. The decision passed despite three dissenters, a narrower margin than most Fed actions. Those who were not on board seem largely concerned that the Fed is taking too long to act, meaning it will eventually have to raise interest rates more sharply later on, possibly contributing to a recession. Inflation has remained quite low in the US, though not as low as in Japan and Europe, where central banks are still struggling to see positive numbers at all. The Fed has two more meetings before the end of the year, one in November, just days before the presidential election, and one in December. It is largely expected to raise rates on one of these two occasions, more likely in December so as not to be seen as influencing politics. Since inflation has still been so sluggish, I personally think is okay not to act until the end of the year, as long as it does so then regardless of the political situation or other factors. While business investment could be stronger, keeping interest rates at near zero levels has likely done most of what it can.

http://www.nytimes.com/2016/09/22/business/economy/fed-interest-rates-yellen.html?ref=business&_r=0