August 18, 2014, 16:00 JST

Wage growth reached 4 years high

 Source: MHLW, JMA.

The average wage in Japan rose by 1.0% year on year (YoY) in June this year, the highest growth rate in 4 years. The growth rate in the basic wage component remained stale at 0.2% YoY, but the summer bonus component rose by 2.0% YoY, adding a boost to the total wage growth. Details reveal that the regular employees in large corporations are comparatively better compensated. For regular employees working for businesses with more than 30 employees, their total wage rose by 2.4% YoY in June, with its bonus component growing by 3.7% YoY.

While the acceleration in the nominal wage growth is welcome, the speed of the growth is still insufficient when compared with the rate of consumer price inflation. In June, National CPI rose by 3.6% YoY. This means that for an average employee in Japan with 1% YoY wage growth in June, their real income was severely reduced from the same time last year. Even the best paid class, regular employees in large corporations, are in fact treated by a real wage cut though inflation this year, although they may not realize it. The real wage index is calculated to have declined by 3.2% YoY in June.

 Source: MHLW, JMA.

Implication for the Japanese economy

Given the sizable decline in real wage, it is difficult to envisage how private consumption in Japan could expand in real terms in the rest of 2014. 88% of Japanese workers are salaried workers and wage accounts for the biggest portion of Japanese household income. Non-wage income is not faring better either. The public pension payment in fact was cut earlier in the year to reduce the imbalance in the pension finance. While the expansion in employment and improving consumer sentiment could prevent consumption from declining, the private consumption is unlikely to be a driver for the Japanese economy in the next few quarters until the VAT effects on prices fade away. 

 Source: Cabinet Office, JMA.