Japan: preparing for a wage growth surprise!
Nadya Mihaylova - 22 March 2017
One factor which helps to explain the negligible rise in wages to date is the growing share of part-time and temporary workers in the labour force following the financial crisis. The number of part-time employees – most of whom are women and older workers – has increased from just 11.1% in the 1980s to around 30% today, having a depressing impact in wage growth. However, as the economy has started to recover and business confidence to improved, the share of part-time employees has flattened off in recent years. The most recent data also indicates a stronger demand for full-time, regular, workers who have higher pay and more bargaining power. Therefore, the negative structural trends which have weighed down wage growth are abating and are likely to reverse soon.
The wider macroeconomic conditions in the country have also continued to improve. The medium-to-long term inflation expectations in the business world have stopped declining as the labour market has tightened and the negative effects of the low oil price have dissipated. The burst of growth in the global economy has also helped to boost export growth – up 11% year-on-year in the latest month – and corporate profitability, which could translate into higher bonuses and non-scheduled payments – two components of total cash earnings which tend to increase in booming business cycles. Since corporates in Japan have a more reflationary mindset, denying basic pay hikes will be more difficult than when price growth expectations were much lower.
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