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No.82(2012/2/28)
Wage Hikes Necessary to Stimulate Domestic Demand
and Overcome Deflation
In 2011 nationwide consumer prices in Japan declined by 0.3% from the previous year. This was the third consecutive year of decline, and it meant that the Japanese economy was unable to break out of its deflationary condition. Cheaper prices might be welcomed by consumers, but for workers there is no reason to be gleeful, because a drop in prices also has an impact on their wages.
According to the monthly labour statistics survey of the Ministry of Health, Labour and Welfare, the total income of workers (including overtime pay and bonuses) continues to decline. Recently, although total income did rise by 0.6% over the previous year in 2010, it declined by 3.8% in 2009 and 0.2% in 2011.
Certainly, in the background to this fall in wages there is the pressure on corporate profits caused by the slump in overseas economies, appreciation of the yen, and other factors. And certainly, the decline in prices resulting from weak domestic consumption is leading to poorer conditions for workers in those sectors. Yet even in good times, management has been reducing the share of profits distributed to labour. From 2002 to 2008 Japan experienced the longest period of economic expansion, centered on exports, since World War II, but wages fell even during that time (see accompanying table).
As a standard for attaining medium- and long-term price stability, on February 14 the Bank of Japan decided on a policy of guiding the year-on-year consumer price index up to an inflationary target of 1% and no more than 2%. BOJ Governor Masaaki Shirakawa recognized the limits of monetary policy alone and stated, "Increasing the latent growth rate is necessary in order to overcome deflation."
The supply-demand gap in Japan is said to be 15 trillion yen. In order to plug this gap, it is necessary to stimulate domestic demand. However, the wages of Japanese workers are falling over the long term, and the number of low wage earners---so-called nonregular workers---is increasing. For this reason, people are protecting their livelihoods by tightening their purse strings and refraining from buying things.
Because of the stagnation of overseas economies against the background of the debt crisis in the European Union, and also the strong yen, the Japanese economy is at a standstill. In these circumstances, the prices of crude oil, cereals, and so on are rising, and fuel and raw material costs are hovering at high levels. In 2011 gasoline prices and electricity rates rose by 9.6% and 2.8%, respectively, and people are worried about the impact on their lives in the future.
Labour-management negotiations are now taking place in this year's Spring Struggle for a Better Life. Nippon Keidanren (Japan Business Federation), the representative of management, has rejected demands for a hike in the year-by-year basic wage determined by length of service as "out of the question." This position is no more than an attempt to curb total personnel expenses, reduce costs, and ensure short-term profits. It completely ignores such macro issues as how to reinvigorate the Japanese economy and society, how to expand domestic demand, and how to break away from deflation.

Consumer Price and Wage Trends
(% change from previous year)
Year Consumer price
index
Standard wage Total income
1999 -0.3 -0.4 -1.5
2000 -0.7 0.3 0.1
2001 -0.7 -0.9 -1.6
2002 -0.9 -1.7 -2.9
2003 -0.3 -0.7 -0.7
2004 0.0 -0.7 -0.7
2005 -0.3 0.2 0.6
2006 0.3 -0.3 0.3
2007 0.0 -0.5 -1.0
2008 1.4 -0.1 -0.3
2009 -1.4 -1.3 -3.8
2010 -0.7 -0.2 0.6
2011 -0.3 -0.4 -0.2
Source: Statistics Bureau, Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare
Note: Standard wage does not include overtime pay and bonuses. Total income includes overtime pay and bonuses.
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