At 40 hours a week, that salary would be double what new graduates from Japan’s top universities could expect to receive at the nation’s top mega-banks. One commenter said the discrepancy made working in Japan “look stupid.”
The yen’s historical weakness has not caused the problem, it has simply exaggerated the gap. Along with rising inflation, the currency has shed a harsh light on an ugly truth: By international standards, Japan’s famous working masses are terribly underpaid.
It is a legacy of decades of economic buoyancy and conservative decisions by both management and workers. Japan’s average wages have infamously stagnated for three decades and are well below the OECD average. Companies have become obsessed with cutting costs and have gotten pretty good at it too, with cash reserves and profit margins increasing.
But the domino effect of the battered yen on inflation now means that workers’ real incomes are shrinking like never before. While Apple Inc. touted unchanged prices for this year’s iPhone lineup, Japanese consumers pay 20% more for an iPhone 14 compared to last year’s model. Unsurprisingly, sales in one of Apple’s key regions are some of the worst in years.
The situation raises some concern about the risk of a brain drain, as young people seek opportunities abroad. By contrast, the healthcare and construction workers that Japan has been trying to coax from abroad may find the country a less attractive destination when calculating what their wages are worth back home.
Even in the current inflationary period, companies still choose to absorb most of the increase in input costs, largely imported, rather than pass it on to the consumer. For every 100 yen of spending increase, businesses transfer an average of just 36.6 yen to the customer, according to a survey of more than 1,600 businesses by Teikoku Databank. Contrary to the stereotype of the cozy Japanese cartel, competition in many sectors is fierce and with the incomplete recovery from the pandemic, many fear higher prices will send consumers to rivals.
Of course, it is good news for consumers (especially the country’s retirees) that Japan’s inflation remains relatively low, even if it is rising, with Tokyo prices minus fresh food rising 3.4% in October. , the most since 1989. For shareholders, rising profits The margins that Japanese companies manage to make are welcome, especially if you pay in dollars.
But the remaining 63.4 yen of that 100 yen cost increase must come from somewhere. In practice, that means cost cuts and lower profit margins, which in turn means less money for workers. That also contributes to the insidious practice of asking subcontractors for lower prices, which puts strong downward pressure on companies further down the value chain.
The Bank of Japan signaled its confusion on Friday, citing “high uncertainties” about how companies would set wages in an inflationary environment. It’s not hard to see where they’re coming from: These circumstances haven’t existed in Japan for three decades, before businesses were traumatized when the bubble economy burst. It is difficult to predict how they will react.
But it’s hard to get too excited about the news that Rengo, Japan’s largest labor union, plans to seek a 5% raise in next year’s spring wage negotiations. Even if management agrees to that request, Rengo only has 7 million members, a fraction of Japan’s workforce. Wage negotiations have largely failed to move the needle for three decades: it is more fundamental structural problems that need to be addressed.
These include the still depressing ability of workers to move easily through the labor market; the disparity between full-time and part-time workers; low starting wages, even for highly skilled workers; and the many other vestiges of an employment system that has long outlived its usefulness.
The problem, of course, is that any attempt to fix things is likely to be deeply unpopular. A key reason workers are paid so little is because it is incredibly difficult to fire them. Without a growing population, there will be no return to the high-growth boom of the 1970s and 1980s, when the country boasted that almost everyone was middle class. Labor reform would inevitably require exchanging job security for job liquidity. Significant moves to reward those with more skill or risk appetite will inevitably eliminate economic inequality, something Japan has largely avoided despite slow years (a key reason crime is so low and streets so clean).
Prime Minister Fumio Kishida has talked a lot about securing pay rises, but is he the man to tackle such an ugly problem when his stock has never been lower? Inflation and a weak yen add a sense of urgency, but also open a window of opportunity as businesses and consumers alike get used to seeing prices rise and begin to consider their options to deal with it. Kishida talks about using the soft yen to benefit Japan; a bold program to spur investment and jobs in Japan, from both domestic and foreign companies, is long overdue.
Despite the yen, Japan’s youth are unlikely to give up the country’s many perks to ask Angelenos if they want fries with it. But another 30 years of stagnant wages? Nobody will love that.
More from Bloomberg’s opinion:
• Workers in Japan should ask for a raise: Gearoid Reidy
• Inflationary excesses in Japan. No Big Deal: Moss and Reidy
• Wall Street denies the ‘real’ economy: Gary Shilling
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Gearoid Reidy is a columnist for Bloomberg Opinion who covers Japan and the Koreas. He previously headed the breaking news team in North Asia and was deputy chief of the Tokyo bureau.
More stories like this are available at bloomberg.com/opinion