Real Wages weak in Japan… trouble for Abenomics
I wrote last November that the success of Abenomics in Japan would depend on raising labor’s share of income faster than inflation. Basically real wages need to rise. I would now add that real wages need to rise faster than productivity. The key is to raise effective demand with healthier consumption demand.
So we see an article in the WSJ today that the Virtuous Cycle of Abenomics is Spinning more slowly. Why? What is happening?
“… a string of recent data — from soft consumer spending, tepid wage growth, and a newly muddled jobs picture — offer a sobering reminder of the challenges that remain before Prime Minister Shinzo Abe…”
The article points out that labor demand looks to be peaking. Unemployment has recently risen. There is a decline in permanent work with a rise in non-permanent work. The prospects for a significantly higher labor share are low.
The article did mention that profits in Japan are good.
“The signs aren’t all bad. Companies are expected to report robust profits over the next couple of weeks, suggesting more potential for hiring and higher wages. In anticipation of such results, the Nikkei Stock Average has rallied in recent days, trading at a six-month high.”
More potential for hiring and higher wages??? Firms are competing on the international market. It is not likely that those profits will find their way into the hands of labor in Japan in any significant way. That should have already happened. And there is little sign it is happening now.
In all, I measured the success of Abenomics upon raising labor share. So far, wages have not risen enough for Abenomics to eventually succeed in its goals.
Actually Edward, if you go check the labor market data, you’ll see the rise in unemployment was due to more people looking (always a good sign of labor conditions).
In addition, the ratio of Job openings to seekers rose to 1.10
Meaning 110 openings for 100 seekers
This indicates an improving not declining job market in Japan.
In addition the new minimum wage hikes are about to go into effect in October, the Abe Government and labor are looking into higher wage increases than the year before.
While I agree its necessary that wage growth become more robust in Japan, there is still time, especially if Labor wins the negotiations on the wage hikes.
as for consumer spending, the negative effects of the recent tax hike are likely to subside by the end of summer
hi axt113,
Yes, more women are moving into the labor market there. One reason unemployment rose.
Question… if labor wins the negotiations, how soon will we see the wage growth? How much time is there? Global growth is slowing.
From my view point, labor demand increases with lower labor share more than labor supply falls. So seeing more job openings per seeker is a double-edged sword. Do firms in Japan feel confident that they can keep labor share low? It seems so. It may be that many people are holding out for better pay or a more permanent job.
Can firms meet those needs of labor enough to not compromise their labor demand?
I keep something in mind… From my view, Japan is already up against the effective demand limit. How do I know? Capacity utilization has been falling all year while unemployment ticks down. So GDP growth will not keep rising as much as in the 1stQ 2014.
http://www.tradingeconomics.com/japan/capacity-utilization
Capacity utilization has been coming down in UK too. It is just holding steady so far in the US.
http://www.tradingeconomics.com/united-states/capacity-utilization
Productivity in Japan has spurts and starts, but remains steady on average.
http://www.tradingeconomics.com/japan/productivity
Japan has some challenges with inflation and growth.
But I am thinking about your last statement about the negative side effects of taxes wearing off… Will consumer spending be enough?
Disposable personal income is weak…
http://www.tradingeconomics.com/japan/disposable-personal-income
household spending got weaker too… You see a jump before the taxes in this graph.
http://www.tradingeconomics.com/japan/household-spending
If household spending simply returns to zero% growth, it will be trending on a lower path now after a few months of decline. We would need to see household consumption rise more than that. When will those wage raises come into effect?
Higher wages would take effect in October.
I agree until we see more wage growth we won’t see stronger gdp growth in japan.
But that may be coming sooner than you think
blogs.wsj.com/economics/2014/06/26/with-job-market-tight-japan-firms-get-creative-to-find-workers/
Already Japanese employers are reaching the point where increased wages will have to come into play. Basketball won’t attract everyone.
So in addition to a wage hike, employers are struggling to attract workers. That lack of workers may be the key factor in the decline in capacity utilization.
The solution is higher wages