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Japan’s wage stagnation

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Unswerving cyclist
14 Mar 2002
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Just like his predecessor, PM Kishida urged business leaders to raise salaries. While Mr Abe aimed at a 2% increase (unsuccessfully), Mr Kishida raised the bar and asked companies to increase wages by 3%. Richard Katz argues in the article below that unless existing laws are enforced and/or amended ("stepping on the toes of the country’s powerful employers") nothing will ever change.

Japan is hardly the only rich country where real (i.e., price-adjusted) wages have been suppressed in the last few decades. But its performance on this front is second only to Greece, virtually no growth in a quarter century. Across the mature economies, wages have stopped doing what they had been doing for much of the past two centuries: growing over the long term at around the same rate as GDP. During 1996-2019, productivity, i.e., GDP per work-hour, grew 30 percent in 16 rich countries. However, real hourly compensation (wages plus benefits) grew only 19 percent. While Japan's productivity growth more or less matched the others, labor income grew a negligible 3 percent, creating the biggest gap between productivity and wages among OECD countries. This performance is particularly shocking considering that, until recently, Japan's workers got a higher share of national income than workers elsewhere.

While the emergence of the hi-tech industry is one of the reasons for wage suppression, Katz names the other culprit: the lacking political and bargaining power of Japanese labour.

As early as 2001, Olivier Blanchard, who would later become chief economist of the IMF, argued that the decline in the wage share resulted from weaker unions, neoliberal deregulation measures, and the ebbing of past alliances between labor and political parties. In the typical OECD country, union membership peaked in the late 1970s at half of the entire labor force. Since then, it has steadily tumbled to just 20 percent. In Japan, a third of workers were in unions during 1960-75; now it's just 17 percent.

The biggest factor is the sharp upsurge of poorly paid non-regular workers. They rose from 15 percent of the labor force in the 1980s to nearly 40 percent these days. Regular workers, on average, earn ¥2,500 per hour. However, temporaries get just ¥1,660 and part-timers a meager ¥1,050. This practice holds even when regulars and non-regulars work side by side doing the same job. Moreover, the growth of the non-regulars has weakened the bargaining power of the regulars. That's one reason that, from 2007 to 2018, the real wage of regular workers fell by 1 percent.

Last but not least, labour inspection only exists on paper.

In Japan [...] no ministry is mandated to investigate the problem and prosecute violators. Victims have to launch and pay for their own lawsuits and the courts almost always side with the employers.

Sad times.
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