Higher wages, higher bonuses - yet Japan’s average wages continue to fall in 2007

December 26, 2007
By Ken Worsley

Last week, the Ministry of Health, Labor and Welfare announced that in October, Japan’s real wage index decreased by 0.2 percent, as total cash earnings fell 0.1%, contractual cash earnings were down 0.3%, and scheduled cash earnings were down 0.4 percent.

Digging into the yearly data, we see wage decline trending downward overall in 2007. We do know that winter bonuses increased by an average of 0.71% in 2007, to hit 829,865 (with the average Nintendo worker taking home a 1,470,266 yen bonus). That 0.71% increase, however, lagged behind the 1.82% increase that was seen in the winter of 2006. Most market watchers believe the slowdown in the growth rate is due to the fact that a sizable number of baby boomers are retiring.

To bolster that claim, we can look at Toyota, which issued a winter bonus equivalent to 3.2 months of pay. On the average, that bonus was 0.86% lower than a year ago. In other words, we have plenty of evidence that the retirement of baby boomers is putting negative pressure on wage growth.

This helps to explain an apparent contradiction: According to data from the Ministry of Health, Labor and Welfare, scheduled cash earnings declined in nine of the first ten months of 2007. In the single month without decline, wages changed 0.0 percent. Thus, we have seen no months in 2007 with an increase in scheduled cash payments (Click on the image to view a full-size version).

At the same time, the ministry announced yesterday that 82.8 percent of companies reported that they had either increased wages for their employees or were planning to do so. At the 1,500 firms responding to this survey in September, wages had gone up an average of 1.7 percent, or about 4,400 yen.

Of course, those interested in getting into more details with these numbers will need to break them down into size of firms and take a closer look at the demographics of different sectors, but this reports give us a start, and indicate that we will most likely see further downward pressure on wages in 2008, even if most firms raise their average wages.

Note: We compared the decline in scheduled cash earnings against the report that 82.8% of firms surveyed by the ministry had either hiked their wages or were planning to do so. The decline in average wages over 2007 also applies to the other two categories, total cash earnings and contractual cash earnings. In the case of total cash earnings, we see a fall again in nine of the first ten months of 2007, with a 0.6% increase in August. For contractual cash earnings, we see a fall in seven of the first ten months of the year, with earnings flat in the other three months.

For a more interesting breakdown of these numbers, we will have to compare wage growth at firms with over 30 employees versus wage growth at all firms. Actually, here’s a quick chart. The red line represents year-on-year wage growth at firms with more than 30 employees, while the blue line shows the overall rate of wage growth amongst the Japanese workforce. It literally pays to work for Nintendo.