Wages shape up as key to Abenomics future of Abe

TO SHORE up his ailing premiership, Shinzo Abe is vowing to focus on the economy. But instead of unleashing yet more stimulus, analysts say Abe needs to take a hammer to an old chestnut: moribund wage growth.

Facilitating salary increases would boost household income, and for Abe, help convince an increasingly sceptical electorate that his eponymous economic policies are working for them.

The problem is, employers remain reluctant to boost pay despite record-low unemployment and bumper profits.

Facing two days of questioning along with aides over allegations of cronyism, Abe last Monday signalled a renewed focus on the economy and the quest to raise wages.

Failure on that front has left the Bank of Japan shouldering the burden with unprecedented stimulus and still years away from meeting its two per cent inflation target.

“Abe needs to focus on economic policy to win support back,” said Akihiko Noda, senior principal researcher of Mizuho Research Institute. “That will definitely help.”

The International Monetary Fund says labour market reforms to boost productivity and wages are the “first priority” of Abenomics’ structural reform agenda.

The Washington-based fund recommended raising “administratively controlled wages,” such as civil servants’ pay, in line with the inflation target and incentivising profitable companies to boost wages by at least three per cent per year.

Indeed, conditions in Japan appear to be ripe for higher wages. Companies are sitting on massive stockpiles of cash, and they marked their most profitable quarter on record during the three months ending December 2016.

Unemployment is at 3.1 per cent, the lowest among G-7 countries, and the jobsto-applicants ratio is at the highest point in more than a quarter century.

Yet – just as in other big developed economies including the US, UK and Germany – all that labour market tightness is failing to translate into wage inflation.

Year-over-year measurements of real wages fell from 2012 to 2015, and grew just 0.7 per cent in 2016, according to data from the labour ministry.

Part of the problem for Japan is a legacy from the country’s economic crash in the early 1990s.

In the years that followed, workers accepted lower salaries to secure their job, weakening their negotiating positions, according to the Annual Report on the Japanese Economy and Public Finance 2017 published last week by the Cabinet Office.

The Abe government’s basic economic policy document for 2017 notes the importance of “equal pay for equal work,” and raising Japan’s minimum wage. The former refers to efforts to equalise pay between regular and non-regular workers who perform the same jobs.

On the latter, the administration is sticking to a goal of achieving a weighted average minimum pay of 1,000 yen per hour across the country. — WP-Bloomberg