Japan, Land of the Falling Wage

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from Bloomberg Businessweek,

Prime Minister Shinzō Abe has been trying to revive Japan’s economy for more than a year now. Among his goals is to stoke inflation to convince consumers that deflation is over and to start shopping before prices get any higher. Another goal is to persuade companies to hike wages. Many Japanese workers have had few or no raises in years. Abe’s two goals are intertwined: If inflation catches on but wages don’t rise, households will be worse off than before. With a big consumption-tax increase scheduled for April 1, the prime minister needs companies not only to give their workers raises but also to make those raises generous enough to keep consumers from cutting back as prices go up.

With many employers deciding on raises before the April 1 start of the fiscal year, Abe is counting on people such as Yokohama resident Kazuma Aoki to spend. The 34-year-old accountant says work in his office has picked up lately as clients in the construction industry benefit from a rebound in the property market. With prospects improving, Aoki expects to get a 3 percent raise this spring. “I was thinking about doing some work on the house,” says Aoki, who might also buy appliances and take his wife out for a fancy dinner—a 40,000 yen ($394) proposition in the Tokyo area.

Over the past 15 years, wages have dropped 15 percent. In the 11 months through November 2013, pay for the average worker rose only 0.2 percent. Households’ real income fell 1.7 percent in December from the previous year. Base wages, excluding overtime and bonuses, fell 0.2 percent in December, the 19th consecutive month they’ve dropped. The issue of wages, says Martin Schulz, an economist at Fujitsu Research Institute, “is a litmus test for whether Abenomics works or falls apart.”

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