Can Japan revitalize its economy, birth rate?

May 19, 2016, 11:00 AM EDT
Japanese P.M. Shinzo Abe.
(Source: Day Donaldson/flickr)

On Wednesday the Japanese government adopted a draft blueprint to help fix fundamental flaws in the nation's economy and demographics. "Nonregular" workers, who make up 40% of the labor force and are paid 40% less than full time workers, are to get raises and have better working conditions. (The government aims to reduce the wage differential to 20%, akin to what Europe has.) By putting more money in the pockets of these workers, the draft plan envisions a boost in consumption and growth.

However, employers are not going to be thrilled at this change. And while fair wages should be the norm, Japanese firms faced with higher payroll expenses might lay off some workers or delay investments in order to cope. Thus the effects on the broader economy are harder to predict with any accuracy.

It’s also unclear whether the labor law changes will make a dent in the seniority system that most Japanese firms are built upon. This wage system often attaches greater importance to workers’ age and how long they have been with a company than their performance, wrote the Japan Times.

And like Italy (see Blouin News’ recent coverage), Japan is trying to raise its very low birth rate by raising incentives for potential families. “The root cause of the bottlenecks for economic growth of our country is structural problems of the aging society with fewer children,” the draft plan says. “By around the 2040s, the pace of the population shrinkage will be accelerated to 1 million a year. If this goes on, it is estimated that the population will be less than 50 million in 100 years,” down from today's 127 million people in Japan.

Thus Tokyo aims to raise the country’s fertility rate from the current 1.42 to 1.8. To this end, the draft plan includes monthly wage increases for nursery teachers of almost $55 and day care workers by about $91.

Yet one critical piece missing from the draft plan is how the government will pay for these proposed wage increases for nursery and day care workers.

According to the Japan Times:

Facing snowballing debt repayments, the Finance Ministry usually tries to cut other spending whenever a budget for a major new policy is requested. Last year the government pledged to increase the capacity of nurseries and day care centers for the elderly to accommodate 500,000 more users each. But the relatively low wages paid to staff meant it was unable to recruit staff.

Further complicating things, P.M. Shinzo Abe is considering a delay in raising the sales tax so as to not jeopardize consumer spending and thus the country’s still-fragile economic growth. Will Japan go further into debt to establish a better foundation for the future? Or will this plan also fizzle out amid short-term fiscal woes?