per employee as before. from a macroeconomic perspective, increases in firms'sales prices will lead to a rise in the general price level, while improvements in the efficiency of individual firms'production and sales processes will lead to higher productivity in the economy as a whole. increases in nominal wages caused by labor shortages can be decomposed into two components : the part that is passed on to general prices and the rest, which is absorbed by the increase in labor productivity. put differently, if we subtract the increase in prices from the increase in nominal wages, the remainder will reflect the increase in productivity. this corresponds to the rise in real wages, which represents an increase in households'real income. this raises households'purchasing power, stimulating private consumption, which in turn will spur new investment by firms through a rise in corporate profits. in this manner, the mechanism will start to operate by which increases in wages create a virtuous cycle from income to spending and encourage further economic expansion. as mentioned earlier, in each of the four recovery phases, including the current one, labor market conditions tightened or have tightened. however, the specific degree to which labor market conditions tightened differs by phase ( chart 4 ). during the recovery phase in the mid - 2000s, the active job openings - to - applicants ratio rose only to around 1, which was insufficient to trigger the virtuous cycle just mentioned. under these circumstances, upward pressure on wages was limited, so that deflation continued and private consumption remained subdued. despite being the longest in the post - war era, the economic recovery in the mid - 2000s seems to have not been self - sustaining, but relied on external demand and, more specifically, the credit bubble in the united states fuelling that demand. in contrast, during the izanagi and heisei booms, when the active job openings - to - applicants ratio increased nearly to 1. 5 - - almost the same level as today - - and labor shortages became acute, wages increased and the virtuous cycle described earlier firmly took hold. i would now like to take a close look at developments in each of these phases. let me start with the izanagi boom. during this period, the active job openings - to - applicants ratio increased to 1. 49, which is very similar to the level today. economic history textbooks as well as writings at the time suggest that, with wages rising due to acute labor shortages, firms simultaneously pursued the two options just described ; that

showed significant increases compared to the actual investment made last year. meanwhile, specific examples of labor - saving and efficiency - improving investment include hotels and japanese - style inns using artificial intelligence ( ai ) or robots to take care of their customers, construction firms introducing drones at construction sites, and transportation firms halving the number of workers at warehouses by building automated ones. in contrast to such efforts to raise productivity, moves to pass on increases in wage costs to sales prices have lacked sufficient strength on the whole, since so far such moves have been only observed at some firms in labor - intensive industries and industries with a high ratio of part - time employees, such as transport and dining - out. the experience of prolonged deflation again plays a major role ; with consumers remaining reluctant to accept price rises, many firms are concerned about losing customers if they raise prices. it seems so difficult for many firms to take the first step to raise their prices that they wait and see what other firms are doing. in sum, during the current recovery phase, we have seen the mechanism in place by which labor shortages exert upward pressure on wages, which encourages firms to raise sales prices and work toward raising labor productivity. in this regard, the current recovery is more like the izanagi and heisei booms rather than the recovery in the mid - 2000s. but at the same time, the mechanism is weaker so far in the current phase than in those two phases. in particular, it has been taking time for firms'stance to shift toward increasing wages and prices despite acute labor shortages. nevertheless, economic conditions supportive to wage growth are clearly being put in place. the active job openings - to - applicants ratio already exceeds the peak levels of the izanagi and heisei booms and the unemployment rate is now firmly below 3 percent, suggesting that japan's economy is virtually at full employment. corporate profits are at record high levels, substantially exceeding the levels of the past recovery phases ( chart 8 ). going forward, supported by highly accommodative financial conditions, the economy is likely to continue expanding firmly with labor market conditions tightening further. it is expected that this will reinforce the mechanism by which prices and labor productivity rise along with wages, encouraging households and firms to increase expenditures. if this takes place, the economy will continue to expand in a more sustainable manner. let me add one important thing. although i made various comparisons to the izanagi and heisei booms, there is one