June 3, 2014, 14.00 JST

Real wage drops by 3.1% in April

 

Wages in Japan rose by 0.9% year on year (YoY) in April 2014. While the rate of growth is one of the highest figures in recent months, it still pales when compared with the rate of inflation. In the same month, National CPI rose by 3.4% year on year. Using a slightly different inflation measure, the Ministry of Heath, Labor and Welfare calculates the real wage to have fallen by 3.1% YoY in April. 

A breakdown of wage data shows that the basic salary component, without overtime and bonuses, fell by 0.2% YoY. Thus, all the talks in the Japanese media about base salary increases in large corporations does not reflect national trend. Some companies seem to have paid an out-of-season bonuses in April perhaps to compensate for the VAT hike, but the bonus only accounts for 4% of the total compensation in April. Unless these companies keep paying the bonus every month, it will not help much to cushion the negative shock from VAT hike. 

Implication for the Japanese economy

Given the large decline in real wage, it is difficult to envisage how private consumption in Japan could expanding in real terms in the rest of 2014. 88% of Japanese workers are salaried workers and wage accounts for the biggest portion of Japanese households' income. Non-wage income is not faring better either. The public pension payment in fact were cut in April by 0.7% to reduce the imbalance in the pension finance. While policy makers tend to maintain that private consumption should recover toward this summer, we struggle to find reasons how it could.   

For more details on wage statistics, please click here