Featured in this podcast is Hiroshi Ugai and Ayako Fujita. Since Japanese firms’ wages have barely increased for 20 years, currently the Japanese government is planning to introduce many measures like a tax incentive, moral suasion, and selective wage increases to accelerate Japanese firms’ wage growth. The government expects that these measures will lay the foundation for future economic growth, and that a large rise in wages would also contribute to a sustainable rise in prices. We discuss the impact of these measures, and find that these measures are unlikely to work under the current high labor income shares and firms’ still cautious price-setting behavior in the face of the huge increases in energy and commodity prices. We think persistent labor shortages or policies to boost labor productivity such as through promoting digital transformation (DX) would have more impact, though it would take time to reap results.

This podcast was recorded on Jan 20, 2022.

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