Japanese Wages

Well adding more fuel to the fire on my post yesterday, wages data release today say that monthly wages in Japan, including overtime and bonuses, fell (0.7) for the fifth consecutive month in April (as compared with a year earlier):

Japan's wages unexpectedly fell for a fifth month, hampering a recovery in consumer spending that's being fueled by job growth.

Monthly wages, including overtime and bonuses, declined 0.7 percent in April from a year earlier, the Labor Ministry said today in Tokyo. The median estimate of eight economists surveyed by Bloomberg News was for a 0.1 percent increase.

Without higher wages, consumer spending may falter, threatening growth in the world's second-largest economy. Japan's jobless rate fell to nine-year low in April, prompting some economists to say wages will rise later this year.

``The jobless rate is expected to fall close to 3.5 percent, which will start fueling wages and give thrust to inflation,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

So here is the puzzle: Japan's unemployment is falling as export driven growth continues and the workforce declines, but why are wages falling?

Two explanations are being offered, both of them relatively plausible, but we definitely need more info and data here:

One reason wages have fallen since December is the replacement of retiring baby boomers with younger, and therefore cheaper, employees, economists say.

Another reason is the increased use of part-time workers, whose pay averages less than half that of regular employees, according to Atsushi Seike, professor of labor economics at Tokyo's Keio University and a member of the government's labor policy council.

This trend in falling (real) wages (remember in a deflationary environment nominal wages are falling, but this isn't the point) is of rather long duration:

Average pay fell about 10 percent between 1997 and 2005, when companies replaced regular workers with part-timers. Part- timers made up more than a third of the workforce in the first quarter, rising almost one percentage point from the previous three months, the statistics bureau said this week.

Household spending has been rising slightly in recent months, but it is not really clear why this is. Certainly household spending will be a data point to watch going forward.

Household spending climbed 1.1 percent in April and has risen every month this year, even as wages slipped.