Despite Economic Uptrend, Japan Wages Have Barely Budged

For Japan’s mission to revitalize its once roaring economy, getting wages to rise is crucial. Conditions appear ripe for fatter paychecks: the tightest labor market since the 1970s, eight straight quarters of economic growth and record profits for Japan Inc.

Yet economists expect only a 1% pay rise this year. This would be the biggest since 1997, but hardly enough to power a consumption boost to sustain stronger economic expansion, Bloomberg reported.

Japan’s aging, shrinking population has squeezed the labor market. The job-to-applicant ratio is at levels unseen since the mid-1970s and unemployment has dropped to the lowest since 1993. One notable success of Prime Minister Shinzo Abe’s so-called Abenomics program—his broad strategy to revive the economy—has been to encourage more women to work.

Ironically, that may be stifling overall wage increases, since the labor force is now growing even as the population dwindles. What’s more, many of the women workers are in lower-paid jobs, as are the older Japanese who are rejoining the workforce.

Japan’s labor market is divided into regular workers (with stronger labor laws, higher wages and social security benefits) and non-regular workers (often part-timers with lower pay, fewer benefits and little job security). Since the bursting of Japan’s economic bubble in the 1990s, the ranks of non-regular workers have increased to about 35% of the workforce. And while part-time paychecks have been rising faster than for other kinds of work, that change at the margins has yet to filter through to incomes for most workers.

Historically, regular workers tended to stick at the same company because large corporations offered jobs for life. While that system is breaking down, Japanese are still less likely to move around during their careers—they average 12 years at a company versus 4.2 years for US workers. An unwillingness to switch jobs reduces leverage in pay talks. And while the old system may provide seniority-based wage rises at the individual level, the effect in aggregate is to keep wages down.

Their profits may have risen, but Japanese companies show little inclination to use that money to increase pay.

To combat this, the government will cut taxes for companies that lift spending on wages and investment while raising them for firms that don’t.