Japon | Les actualités économiques et financières

The gears of Japan’s labour market have seized up

In Japan, Shuntō (春闘), or ‘spring wage offensive’, is the term used for the annual wage negotiations between the country’s labour unions – organised by the Japanese Trade Union Confederation (RENGO) – and employers. Do not be fooled by the militarist language though, in recent years this offensive has better resembled a peace keeping mission.

The outcome of the most recent skirmish – a 0.7% increase in “base-up (salaries paid to employees excluding raises for promotion and seniority) is particularly measly given the country’s tight labour market and burgeoning inflationary pressures. Wage growth is key to Japan entering a truly self-sustaining inflationary period, but remains elusive, at least for now. Why is this so?

Maintaining employment has trumped maximising wage growth

To begin to make sense of this we must zoom out to see a fuller picture of the labour market. Japan has come to rely increasingly upon non-regular (temp) workers over regular employees; twenty years ago they accounted for twenty nine percent of the workforce, today that number is thirty seven percent.1

Whilst the working age population has been declining for decades, the actual workforce has expanded, principally as female participation has grown. This majority female pool of labour receives lower pay than regular employees, but enjoys more flexibility. This translates to higher churn which lubricates the market mechanism such that wages can adjust. Churn amongst the regular labour force may be rising but remains low by comparison – maintaining employment rather than maximising wage growth is the name of the game. The market’s gears have all but seized.

Wage bulls, such as CLSA’s Japan strategist Nicholas Smith, talk of a looming “singularity” for the labour market – the point at which all of Japan’s unutilised labour has been put to work – which could finally force wages north.2 Maybe. But the timidity of the unions, the conservatism of employers and low churn amongst regular employees are non-trivial issues which will need to be overcome for Japanese wages to really shift.

Stagnant wages are not just a frustration for workers, but for the government too. In his recent speech at the Guildhall in the City of London (which we attended), Prime Minister Kishida said…

“A major challenge for Japan is that, while productivity growth per working hour has been comparable to that of other countries, wage growth has been low. That has held back consumption and, by extension, overall economic growth […] the government will introduce tax incentives that encourage employers to increase wages, and work with the private sector to create a social atmosphere in which it is normal and natural for pay to rise.”3

In reality, it will be a surprise to most – ourselves included – if the proposed fiscal incentives have much impact. The “creation of a social atmosphere” may be more important but will take time.4

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