Wages up for four straight months but incomes fall

Government PR is making much of the fact that wages have risen for four straight months for full time workers. It is making less noise about the 3.2% fall in real incomes. Coupled with the fact that wages are still below the levels of 2010 and much of the increase was due to labour shortages, the lack of real growth might possibly become a significant break on consumption and medium-term prosperity.

The latest survey of wages from the Ministry of Welfare & Labour confirmed that base wages rose in each month from March to June. The average wage overall across both part and full-time workers in June was ¥242,830 a month, up 0.2% on 2013. Although the government has made much of this in the press, wage levels still remain below those of 2010 (see Chart).

Part-timers did slightly better with wages up 0.6%, but this was largely because of short supply rather than economic bounty. The highest increases were seen in construction (up 1.9%) and distribution (up 1.3%), both industries where demand for low-skilled labour is much higher than supply, especially in the regions. Tight labour supply is actually hindering investment and expansion in these sectors, and the increase in wages, while welcome, is not really a cause for celebration.

A further reason behind the rise is the increasing number of part-time workers converting to full-time contracts as companies attempt to lock in labour supply in the midst of a rapid fall in the working age population – full-time employees earn around three times more than part-timers on an hourly basis.

These small spikes in wages pale into insignificance in real terms, since overall incomes keep falling, down 3.2% in June. Fuel, utility and food prices are all rising faster than incomes, causing a fall in consumer confidence measures in June-July. Plans to increase the minimum wage in October this year are unlikely to have much effect either, with the average rising a mere ¥16 across the country to just ¥780 an hour. Each prefecture has its own rules on minimum wages too, varying from ¥677 in Okinawa and seven other prefectures, up to ¥888 in Tokyo and ¥887 in Kanagawa. The complexity of the rules also provides for loopholes that mean companies can vary wages across prefectural borders and regions.

In February Prime Minister Abe promised a real break through in the Spring to fix Japan’s more than decade long fall in real incomes. As yet there is little sign of significant cooperation from business other than an increase in bonuses, a convenient way to comply with pressure from Kasumigaseki in the short-term. Without a breakthrough, consumer markets will remain tight, even if premium retailers benefit from the widening gap between the have-a-lots and the rest.

The problem seems to be one of culture. Businesses are storing up profit at an unprecedented rate and show little inclination to toe the government line. Three decades ago this would have been unthinkable. A concern for the greater good of Japan, combined with assiduous ministerial pressure, would have led most to increase wages on demand – helped by an understanding that their competitors would also comply and follow the same lead, ensuring a level playing field. This pact seems to have been well and truly broken and the implications for Japan and future consumption will be profound.