Japan’s Prime Minister Shinzo Abe seeks a 3% wage hike to stymie deflation. The call goes unheeded as Over Half of Japanese Firms Plan No Base Pay Rise This Year.
In a monthly Reuters Corporate Survey, just less than half [of Japanese companies] said they would raise pay and most in this group said the increase would be similar to last year’s level of about 2 percent.
In the past four years, major companies agreed to raise wages about 2 percent at annual wage negotiations with labor unions, a benchmark that sets the tone for talks across the country. The bulk of that – about 1.8 percent – comes automatically under Japan’s seniority-based employment system. Anything beyond that is a hike in “base pay.”
But many firms are wary of raising wages as it commits them to higher fixed personnel costs, so they prefer to pay one-off bonuses instead.
The survey was conducted between Jan 31 and Feb 14 on behalf of Reuters by Nikkei Research. Of some 240 companies that responded, 52 percent said they would not raise base pay. “It would leave a burden when the business environment turns for the worse,” wrote a manager at a transport equipment maker in the survey.
The remaining 48 percent said they intended to raise base pay, but 76 percent of this group said the rise would be the same as last year. About 14 percent saw pay rises exceeding last year, while 10 percent said they would undershoot last year’s increase.
In Japan, base salary accounts for the bulk of monthly wages. Rises in base pay had been virtually frozen since the early 2000s amid persistent deflation.
Basic Wage Hike Math
If 50% raise by 2% and 50% by none, the average is 1%. However, we do not know how those hikes are distributed.
Is it the large companies or the small ones offering 0% hikes?
Here’s the deal: If Japan hikes wages, the cost of its products will have to rise. If wages in the US rise and Japan’s don’t Japanese cars and other goods will be more competitive.
But that’s looking at things in a vacuum. The US dollar has been falling. Japanese products already cost more.
I have a musical tribute
Nothin’ From Nothin’
https://www.youtube.com/watch?v=G_DV54ddNHE
Such is the nature of competitive currency debasement.
For the situation in the US, please see How the Fed’s Inflation Policies Crucify Workers in Pictures.
Mike “Mish” Shedlock
link to obatperangsangmanjur.net
“Countries with the highest wages have the largest percentage of highly skilled and educated workers. Jobs requiring low skills are threatened with automation or competition from lower paying jurisdictions. Don’t expect wages to increase in areas of low skills.”
That’s a cute, and on the face of it plausible sounding, mantra. And, and this is perhaps the biggest reason for its popularity amongst the chattering classes, one that allows them too to feel good about themselves and pat themselves on the back. For supposedly having more “skills” than someone else.
And while it’s not entirely baseless, it completely overlooks what has been the main drivers for wage and wealth growth over time: How much capital each worker commands, and how well society’s institutions reward his accumulation of both capital and “skills.” Both of which go hand in hand, in anything resembling an advanced economy.
It’s not as of the discovery of oil in Qatar or Norway suddenly increased some magical “skills” their workforce possessed, versus non-oil Gulf states and Sweden.
Nor do the “skills” of a Russian, multiply tenfold as he crosses the border into Germany. Nor ditto a Mexican and the US’ southern border.
And neither did virtually all skills of all Syrians suddenly disappear over the course of some months, as a war engulfed them. Instead, what happened was that their capital was destroyed, and the institutions they relied on to enable using their skills and capital to add value, disappeared.
Wages resulting primarily from the amount of capital workers command, and their society’s institutions, is why a (not any more “skilled” than any other of his kind) German newborn, can expect to earn many times what a 3rd worlder who spends just as much time in “school” can, once they both are grown up. And why it takes more than just setting up schools churning out degrees and abstract “skills” for everyone, to move a country from 3rd to 1st world status. As capital formation is hard and takes a long time.
Wrt the US working and middle classes (as well as those of England and many/most other countries), it’s not as if American workers are necessarily any less “skilled” in some abstract, capital independent sense than their German colleagues. But rather that they simply don’t have, nor have had, access to the amount of capital the Germans have. Hence also haven’t had the opportunity to acquire the skills to use said capital. The important thing being: Capital is the limiting ingredient. The skills to use it come naturally, if it’s there, and society’s institutions rewards its use for productive purposes, rather than all manners of other nonsense.
Germany, as opposed to the US, UK and many others, have never had an outsized “financial” sector in bed with government. Nor much of an activist judiciary. Nor (related) have they had the silly housing bubbles/real estate “appreciation” that most countries have suffered from since Nixon’s 1971 “Hail Mary to Hell with Possibly Good Intentions.” So, “investment” in Germany has gone into capital goods making workers more productive. Rather than into yet another cheesy kitchen remodel, pointless share buyback, lobbying and silly legal battle over who “owns” and “has the right to” some decaying, once-were-great something, and all the other nonsense that add up to the majority of economic life in the US. Which is why there is a productivity, and hence wage, discrepancy between Germans and most of the rest. And why that discrepancy is only getting bigger.
As an aside, the “German” way is certainly being tested, perhaps dismantled, as a side effect of ECB policies. Back when the Bundesbank ruled the roost, monetary policy was such that there was little room for financial sector dilettantes and other produce-nothing mediocrities from gaining much foothold and influence. But now, easy money is increasingly changing the rules in Germany as well. It’s hard not to, when the equivalent of what takes a few million-man hours of highly skilled and advanced work and quite a lot of risk, can be had for free from the ECB simply by parroting and helping underwrite the progressive party line. Resulting in increasing Anglofication, with all the non-productive pathologies that this entails. Which is another way of saying that the Germans, if they wish to continue to afford their world beating wages and vacations, need to focus on getting the heck out from underneath the boat anchor known as the EU, instead of falling for the scam that having anything to do with those dunces will in any way benefit them.
@nothingbutblueskies
The Japanese central bank has added lots and lots of base money to the economy since the 90s. But at the same time, higher order money, as in debt, has been retired. So the total amount of demand creating “money” hasn’t really increased much, if at all.
And, as is the case with freshprint everywhere, it goes primarily to those closest to the central bank: The government, the wealthy (who own “assets”), and those in the financial sector (whose aggregate pay in a bubble is effectively indexed superlinearly to the value of assets). None of whom are likely to spend a large share of the windfall/loot on things classified as “consumer” goods. Instead, as in the US, the money has mainly gone to prop up deadweights: Zombiefied banks, construction companies (and hence indirectly, yakuza), real estate prices, pointless “luxury” and government debt.
While Tokyo real estate has at times been a bit off from the bubble peak highs, prices never fell nearly as much as they would have absent the BOJ lunacy. Prices are still well divorced from tenants’ ability to pay, were it not for decades on end of zero interest rates and free money. Due to some feature of Japanese tax law, land owners are actually building housing on lots where the anticipated rent doesn’t even cover interest on the construction loan. Since this lowers the lot’s assessed value enough that the tax savings more than make up for the pre tax loss……. What’s a well connected developer to do, when there are no nowheres left to build bridges to, but he still needs cashflow to pay off his even better connected bankster…..
The saving grace for Japan, has been that the “bubble” economy didn’t last long enough to engulf everything. It was largely confined to a decade of real estate/construction, and to a large extent to Tokyo itself. By the time Japanese techno-industrial powerhouses started getting silly, giddy and borderline uncompetitive, the bubble was already peaking. So the manufacturers, and their workers, remained strong enough shoulder the massive burden of the decades long BOJ sponsored bailout of Japan’s FIRE + construction complex and the dilettantes running it that makes up much of Tokyo “society.”
The Anglo economies will have no such luck when our/their bubble bursts; as here the bubble, and with it the attendant dilettantes, truly has engulfed, and are running, everything.
Thanks, Mish.
There is a bit of price inflation, just not much, since 2014. Curiously, price deflation started just as efforts to beat it began in earnest. link to fred.stlouisfed.org
Mish, I’m confused. The Japanese central bank has pumped the economy for decades with money, yet the economy is deflating. I understand that there are demographic and technological reasons for deflation, but why isn’t there even a modest increase in inflation? Thanks.
“But that’s looking at things in a vacuum.” As we all know, nothing happens in a vacuum. For each action, there is an equal and opposite reaction.
$15 an hour minimum wage will leave a mark in the coming downturn as well.
” Of some 240 companies that responded, 52 percent said they would not raise base pay. “It would leave a burden when the business environment turns for the worse,”
If there is deflation, even a 0% wage increase is a pay hike in that it will buy a higher standard of living. A wage hike of 2% combined with a 1% deflation would double your standard of living every 23 years. Unless there is also a 3% increase in productivity every year, in the long run that will crush Japanese businesses.
I’m pretty sure the only way to get a raise in the US these days is to take a new job. But you had better be a good negotiator if you’re moving into a place like Denver. A first time homebuyer or renter doesn’t stand a chance when competing for housing with the influx of Californians.