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No.188(2015/6/17)
Real Wages Rise at Last, But Only Slightly

The results of the Ministry of Health, Labour, and Welfare's monthly labour survey for April 2015 show that real wages (see note) increased over the same month in the previous year for the first time in 24 months. The year-on-year rate of increase, though, was only 0.1%, which observers doubt is sufficient to stimulate personal consumption. In 2014 Japan's real gross domestic product shrank by 0.1% due to the impact of a consumption tax hike. In the January-March 2015 quarter it recovered considerably, increasing by 2.4% over the previous quarter. But economic trends from now on are going to depend a lot on domestic demand and personal consumption in particular.
The main reasons for the upturn in real wages are that in the year since the consumption tax was hiked from 5% to 8% in April 2014, inflation has settled down and nominal wages have risen. While consumer prices rose by an annual average of 2.7% in 2014, this rate of increase had dropped to 0.6% by April 2015.
According to a calculation by Nippon Keidanren (Japan Business Federation) in April covering 62 leading corporations, wages had increased by 2.59% as a result of this year's spring labour struggle. According to a survey conducted in May by RENGO (Japanese Trade Union Confederation), however, the wage increase was a little lower at 2.28% (6,710 yen), probably because the number of surveyed companies was higher (3,439 unions with 2.3 million members). According to the same RENGO survey, the hourly wage of nonregular workers (part-time workers) had risen by 15.37 yen to 949.04 yen.
In order to break away from deflation, the government is aiming to achieve a positive economic cycle in which the improvement of corporate profits leads to increased capital investment and wages and thereby expands consumption. The key here is wage increases. Following the wage hikes achieved in this year's spring labour struggle, summer bonuses in the 63 leading corporations surveyed by Nippon Keidanren will be increased by more than 2% (2.43% on average). However, a RENGO survey of 957 unions showed that summer bonuses would actually decline, albeit slightly, by 0.05%. These results indicate that the trend toward wage and bonus increases has not trickled down to workers as a whole.
In order to put the economic recovery on a solid footing, it will be necessary to spread the wage and bonus hikes throughout Japan as a whole and thereby increase household disposable income and personal consumption. However, the consumer mind is not looking upward. Indeed, in April the consumer attitude index decreased from the previous month for the first time in five months. And a household account survey (households with two or more members) showed that per household real consumption expenditure in April fell by 1.3% compared with the same month in the previous year. Personal consumption is certainly in the doldrums.
There is also a possibility that personal consumption is being held back by the sharp weakening of the yen, which is beginning to have an impact on, for example, the price of food products and eating out. A year ago the exchange rate was around 102 yen to the US dollar, but on June 2, 2015, it went over the threshold of 125 yen to the dollar. If this situation continues, the rise in import prices is likely to increase the burden on household accounts and further dampen personal consumption.

Real Wage Trends (Enterprises with Five or More Workers)

  All industries Manufacturing industries
Compared with previous year (%)
2010
2011
2012
2013
2014

1.3
0.1
-0.7
-0.5
-2.5

4.8
2.3
0.2
-0.4
-0.8
Compared with same month of previous year (%)
January 2015
February
March
April

-2.3
-2.3
-2.7
0.1

-2.9
-2.3
-2.6
-1.2

Source: Ministry of Health, Labour, and Welfare, Monthly Labour Survey

Note: The real wage is calculated by dividing the total take-home income paid to the worker by the consumer price level. The total take-home income includes everything paid to the worker as compensation for work, including wages, allowances, and bonuses. Accordingly, it includes items influenced by favorable or unfavorable business conditions, such as the overtime allowance and bonuses.

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