Chart of the Month
While monthly wage data for Japan is notoriously erratic, it is difficult to dispute the steady acceleration of the wage bill over the past 2 years. With labour shortages widespread, companies are offering more full-time contracts to part-time workers as a retention strategy. There have also been boosts to the overall wage bill as more workers have transitioned from irregular to regular employment, a furtively rising migrant population, higher bonus payments and the response to PM Abe’s tax incentives linked to pay growth. Scheduled cash earnings have recorded six consecutive months of stronger readings, averaging above 1 per cent annual growth. Finally, we have lift-off.
Since the global financial crisis, growth stocks in the S&P500 have noticeably outperformed their value counterparts, measured on a return or price index basis. The paucity of meaningful stock price corrections in the past 9 years has not provided the usual opportunities for value stocks to recover ground. To the extent that this is an unintended consequence of post-crisis US monetary policy, the unwinding of this policy invites a market reset that restores hope to value investors.
Germany, which implemented the Hartz reforms more than a decade ago, has achieved an impressive increase in labour participation from 65.2 per cent 2005 to 75.7 per cent in the first quarter of 2018. In stark contrast, the employment rate in France (65.2 per cent) and Italy (58.2 per cent) has stagnated over the past 15 years. This is clearly an unsustainable situation and both governments must seek to increase the youth (15-24) and elderly (55-64) workforce participation ratio in order to regain some productivity and higher growth expectations. Both France and Italy need to overcome significant obstacles in coming years if they are to stabilize their government finances and reduce their debt-to-GDP ratios.
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