Japanese workers will see a 1 percent increase in their total earnings next year, the most since 1997, as rising profits and the tightest labor market in decades add upward pressure on pay, a Bloomberg survey shows.
“The labor shortage is definitely getting more serious,” said Shuji Tonouchi, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. who was among 16 respondents to the Dec. 8-13 poll. “On top of the tight labor market, improving corporate earnings will add tailwinds.”
The responses from Tonouchi and others are cause for optimism about pay gains after five years of aggressive monetary and fiscal stimulus. But they cautioned that the increase in total earnings, which includes regular wages, overtime and bonuses, may not translate directly into consumption.
While tepid increases in wages have been a global problem in recent years, the issue is particularly acute for Japan, which is grinding its way back to economic health after a prolonged period of deflationary malaise. The lag between part-time and full-time pay is also an ongoing concern for Japan.
Getting more money into the pockets of workers is vital for Prime Minister Shinzo Abe’s strategy to reflate the economy and he’s urging companies to boost pay by 3 percent in 2018. Bank of Japan Governor Haruhiko Kuroda said last week he hoped that companies and labor unions would take "forward-looking initiatives" next year.
After previous calls were largely ignored, the Abe government is now backing up its talk with a carrot-and-stick approach by providing tax benefits to companies that increase spending on wages and investment while clamping down on benefits for firms that don’t.
One of the most important early measures of progress in 2018 will be the "shunto" spring wage talks between unions and companies, which can set the tone for pay rises across the economy.
The Japanese Trade Union Confederation, known as Rengo, said it is seeking a 4 percent increase for its members.
If history is any guide, companies will push back hard against this and agreements will be struck for a much smaller increase.
Rengo is likely to report the first round of results in mid-March.