COMP NEWS – Japan’s wage growth has been stagnant for nearly 30 years, according to new data from the Organisation for Economic Co-operation and Development (OECD).
Like other parts of the world, inflation in Japan has become a major headache. In the year to December, core consumer prices rose 4%. That’s still low by comparison with America or Europe, but represents a 41-year high for Japan, where people are more used to prices going backwards.
“In a country where you haven’t had nominal wage growth over 30 years, real wages are declining quite rapidly as a result [of inflation],” Stefan Angrick, a Tokyo-based senior economist at Moody’s Analytics, told CNN.
Last month, Japan recorded its biggest drop in earnings, once inflation is taken into account, in nearly a decade.
Japan’s wage growth has remained stagnant for nearly 30 years, with the average annual paycheck only rising by around $2,000 in that time.
In 2021, the average annual paycheck in Japan was $39,711, compared with $37,866 in 1991, according to data from the Organisation for Economic Co-operation and Development (OECD).
That means workers got a pay bump of less than 5%, compared to a rise of 34% in other Group of Seven economies, such as France and Germany, over the same period.
Experts have pointed to a series of reasons for the stagnant wages. For one, Japan has long grappled with the opposite of what it’s facing now: low prices. Deflationstarted in the mid-1990s,because of a strong yen — which pushed down the cost of imports — and the bursting of a domestic asset bubble.
“For the past 20 years, basically, there has been no change in consumer price inflation,” said Müge Adalet McGowan, senior economist for the Japan desk at the OECD.
Another challenge for rising wages is Japan’s productivity rate. Despite the country having a culture of long working hours, the country’s GDP output is lower than the OECD average.
Experts say Japan’s wages have also suffered because it lags in another metric: its productivity rate.
The country’s output, measured by how much workers add to a country’s GDP per hour, is lower than the OECD average, and “probably the biggest reason” for flat wages, according to Yamaguchi.
“Generally, wages and productivity growth go hand-in-hand together,” McGowan said. “When there’s productivity growth, firms perform better and [when] they do better, they can offer higher wages.”
She said Japan’s aging population was an additional issue because an older labor force tends to equate to lower productivity and wages. The way people are working is also changing.
In 2021, nearly 40% of Japan’s total workforce was employed part-time or worked irregular hours, up from roughly 20% in 1990, according to McGowan.
Japan’s unique work culture emphasizes long-term employment, where companies retain workers for years, decades, and even lifetimes.
Japan’s unique work culture is contributing to wage stagnation, according to economists.
Many people work in the traditional “lifetime employment” system, where companies go to extraordinary lengths to keep workers on the payroll for life, Angrick said.
That means they’re often very cautious about raising wages in good times so that they have the means to protect their workers when times are tough.
“They don’t want to lay people off. So they need to have that buffer in order to be able to keep them on the payroll when a crisis hits,” he said.
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