Pigovian Tax on Employment

The Rust Belt is the area left behind after the companies that lost out to the Japanese manufacturing industry left. Market forces are competitive, and companies try to keep costs low. They lower salaries and cut staff. Or, in order to cut labor costs, they move their manufacturing facilities overseas where they can hire people at lower salaries.

In Japan, the government forcibly intervened in the market and created a distorted market economy where companies that should have gone out of business survived, and where the government refused to allow new entrants into the government sector through voluntary contracts. It was difficult for new companies and industries to grow in Japan, and employment did not increase. The Ice Age generation of job seekers had no opportunity for full-time employment, and those who had no work experience other than being hired as new graduates could not be hired as full-time employees.

This problem of the ice age generation of job-hunting seems to be unknown overseas, but I have experienced it myself, and our generation knows how serious it is. Foreign economists may wonder why Japan's birthrate continues to decline. The answer is simple. It is because we, the junior baby boomers, the largest population in Japan, lost the opportunity to be employed full-time, were forced into low-wage jobs, could not marry, and could not have children.

There are those who argue that if the population decreases, we should accept overseas workers. This is like giving a blood transfusion without sealing the wound. Bringing in workers from overseas to work for low wages while depriving them of their rights through legal reforms will worsen the problem. As pointed out by the Labour Union of Migrant Workers (LUM), the ILO considered the Technical Intern Training Programme as forced labour and considered it a problem, but at the very least, foreign technical interns must be given the same rights as Japanese. There are people who have lost their jobs due to the spread of covid-19 and cannot even return home. They are victims just like the ice age generation. There is no such thing as a convenient worker who can be easily fired and who works long hours for low pay.

As the Nihon Keizai Shimbun and TV Tokyo have pointed out, Japan does not value the abilities of those who have completed graduate school. There are no workplaces for master's degree and doctoral degree holders. If there were a civil service hiring system that gave preferential treatment to those who have completed graduate school, as is the case with foreign governments, private companies would follow suit, but there is no such movement.

The internalization of external diseconomies in environmental economics is an effective way to capitalize on market forces. No one can deny market principles, but as long as we leave the external uneconomic situation as it is, it is also undeniable that the problem will worsen no matter what economic policy we adopt.

The Pigou effect is useless, but the Pigovian tax is effective. The labor problem is truly an external diseconomy. In environmental economics, there is a concept called a Pigovian tax or a Baumol–Oates tax. We can apply them to the external diseconomies of labor. Employment problems are similar to environmental destruction. Therefore, the Pigovian tax is ideal for internalizing the market. Specifically, corporate tax cuts should be determined by the ratio of full-time employees to part-time employees in the company. This would provide a stimulus to increase the number of full-time employees. This should also be applied together with the certification system based on the SDGs mentioned above. The current system of subsidies is ineffective because it only increases expenditures.

Full-time employees are treated in a variety of ways other than salary. Under Japanese law, full-time employees are not easily dismissed. Heizo Takenaka's insistence on labor mobility has forced people to work for low wages that do not allow them to earn a decent living. What Japan needs is a policy to increase the number of emerging companies that are responsible for new industries, and to eliminate monopolies and oligopolies, in other words, corporate mobility. Without this, there will be no increase in employment. The burden should not be placed on the workers, but the pain should be borne by the companies.