The “Lost Decade” historically refers to the economic failures in Latin America during the 1980s. Starting in 1980, the region’s real per capita GDP fell 9 percent over the next three years and did not fully recover until 1994. More recently, Japan’s experience in the post-bubble 1990s has also been described as a lost decade.

However, such a connection is quite unfair. While Japan was very much a developed country by the 1990s, Latin America was developing in the 1980s, and had a lot of catching up to do, in terms of economic growth. Latin America in the 1980s should have grown much more rapidly than Japan in the 1990s. Yet from 1992 to 1999, Japan grew 5 percent per capita and 15 percent over 14 years — significant in contrast to the zero growth in Latin America over the same length of time.

In fact, Japan’s economic performance was — all things considered — quite reasonable relative to its peers. In Figure 1, we see the annualized contributions to growth in GDP per capita for select high-income countries over the period 1992–99.[1]

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Japan’s productivity growth was above average for the group — nearly 2 percent per year. In part, Japan stands out for having the most rapid aging of its population. As Figure 1 shows, the working-age share of the population fell most rapidly in Japan. However, Japan also had the most rapid reductions in annual work hours per employee.

It is not clear that either of these factors reflect poorly on Japan’s performance over the period. Broad-based increases in leisure is a pretty unambiguous good even if it trades off against increased incomes, and the trend predates the period in question. Work hours per employee fell from 1985 to 1992 as rapidly as they did from 1992 to 1999.

Even if we were to assert that the work hours reduction merely attenuated a fall in working-age employment rates, this would clearly rate as a success story — especially when contrasted with an alternative of throwing some significant portion of the population out of work.

In the end, the general sense of Japan’s poor performance comes from bearing witness to its transition from a high-productivity-growth and working-age boom economy to an aging economy with merely moderate productivity growth. Indeed, on these fronts, not much has changed since. Productivity growth is — if anything — slower in recent years, and the effect of aging has grown. What has changed in the last 20 years is that women’s employment rates have increased to historically unprecedented levels. Increasingly, formal recognition of women’s labor is certainly a notable trend, but hardly suggests that 1990s Japan fared unusually poorly.

Finally, if concerns about a “lost decade” in Japan are overblown in comparison to its peers, how does it compare to the growth failure in Latin America? In Figure 2, we compare 1992–99 Japan to countries of mainland Latin America 1980–90 for which complete data is available.[2] We also include Mexico from 1988 to 2000, which excludes its real per capita GDP collapse of 13 percent from the 1981 peak to the 1988 trough, and includes its recovery through its 2000 peak.

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In contrast to Japan’s aging, working-age adults formed an increasing share of Latin America’s population during the 1980s. Per working age adult, Japan’s GDP grew 1 percent per year — faster than any other 1980s performance examined; only Mexico’s “recovery” through the 1990s matched Japan’s performance. Rising rates of employment in Latin America were not sufficient to offset slow or negative growth in productivity in the region.

There is simply no real comparison between the Lost Decade in Latin America and the experience of Japan in the 1990s.


[1] Japan, plus all founding members of the OECD with productivity levels in 1992 at least as high as Japan.2 Apart from the countries in Figure 1, Bolivia, El Salvador, Guatemala, Guyana, Haiti, Nicaragua, and Trinidad and Tobago all saw falls of at least 10 percent in real-per capita GDP. Honduras, Suriname, Costa Rica, Uruguay, and Bermuda also saw declines over the decade.

[2] Apart from the countries in Figure 1, Bolivia, El Salvador, Guatemala, Guyana, Haiti, Nicaragua, and Trinidad and Tobago all saw falls of at least 10 percent in real-per capita GDP. Honduras, Suriname, Costa Rica, Uruguay, and Bermuda also saw declines over the decade.