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I want to be reborn as a 23-year-old Japanese. In fact, the current generation of Japanese high school and university graduates can look forward to achieving something that, unfortunately, looks increasingly unlikely for their peers in the United States, Germany, France, Britain, South Korea or other advanced industrial economies: Yes, Japan will become the envy of the world because it is the one country where the up-and-coming next generation is poised to be better off economically than their parents. Here’s to the Reiwa Generation!

The reason for my optimism is simple. It is Japan’s demographic destiny combined with the basic forces of economics — demand and supply. As the supply of labor goes down, the price of labor, i.e., wages and income, will go up, and contrary to the simple-minded arguments of the demographic doomsday brigade, rising wages and better incomes actually do trigger a positive supply response. People who previously had given up on looking for work all of a sudden become attracted by better pay and better quality employment contracts. They start working again, and so do people who, quite rationally, had decided that they were better off living off their parents or grandparents rather than working for what they deemed sub par compensation or under unacceptable conditions. The magic of free markets actually does work in Japan.

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