When will real wages finally rise?

One of the main features of the credit crunch era has been weak and at times negative real wage growth. This was hardly a surprise when the employment situation deteriorated but many countries have seen strong employment gains over the past few years and in some employment is now at a record high. Yet wage growth has been much lower than would have been expected in the past. As so often the leader of the pack in a race nobody wants to win has been Japan although there has been claim after claim that this is about to turn around as this from Bloomberg in May indicates.

It’s not making headlines yet, but wages in Japan are rising the fastest in decades, in a shift that’s poised to divide the nation’s companies — and their stocks — into winners and losers, according to Morgan Stanley.

No doubt this was based on the very strong quantity numbers for the Japanese economy which if we move forwards in time to now show an unemployment rate of 2.8% and a jobs per applicant ratio summarised below by Japan Macro Advisers.

Japan’s job offers to applicant ratio rose to 1.51 in June from 1.49 in May. The ratio is the highest in the last 43 years since 1974. While the number of job offers continue to rise along with the expansion in the economy, the number of job applicants are falling. With the shrinking population, Japan simply does not have a resource to meet the demand for labor.

I can almost feel the wind of the Ivory Towers rushing past to predict a rise in wages in such a situation. They will be encouraged by this from the Nikkei Asian Review on Friday.

The labor shortage created by stronger economic growth has prompted many companies to raise wages. Tokyo Electron, a semiconductor production equipment manufacturer, is a good example.

Tokyo Electron introduced a new personnel system on July 1 in which salaries reflect the roles and responsibilities of employees. Under the new system salaries will rise, primarily for junior and midlevel employees. The change will raise the total wages paid to the company’s 7,000 employees in Japan by about 2 billion yen ($18.1 million) annually.

This is something we see regularly where the media presents a company that is toeing the official line and raising wages. But I note that it is doing particularly well and expecting record profits so is unlikely to be typical. By contrast I note that there is another way of dealing with a labour shortage.

In April, Lumine, a shopping center operator, responded to an employee shortage among its tenants by closing 30 minutes earlier at 12 locations, or 80% of its stores. The risk was that shorter operating hours would cut revenue, but Lumine sales held steady in the April-June quarter.

Awkward that in many ways as for example productivity has just been raised with total wages cut.

What about the official data?

I will let The Japan Times take up the story.

Japan’s June real wages decreased 0.8 percent from a year before in the first fall in three months, labor ministry data showed Friday.
Nominal wages including bonuses fell 0.4 percent to ¥429,686 ($3,880), the first drop in 13 months, the Health, Labor and Welfare Ministry said in a preliminary report.

Up is the new down one more time. Also the official story that bonuses are leading growth due to a strong economy met this.

due mainly to a 1.5 percent decrease in bonuses and other special payments.

There is one quirk however which is that part-time wages are doing much better and rising at an annual rate of 3.1%. The catch is that you would not leave a regular job in Japan because those wages are lower and to some extent are catching up. How very credit crunch that to get wage growth you have to take a pay cut! Indeed to get work people had to take pay cuts. From the Nikkei Asian Review.

Japanese companies hired more relatively low paid nonregular employees during the prolonged period of deflation.

Now we find ourselves reviewing two apparently contradictory pieces of data.

 The number of workers in Japan increased by 1.85 million between 2012 and 2016……….Japan’s wage bill was 7% lower in May than at the end of 1997 — before deflation took hold.


You might not think that there would be issues here as of course the commodity price boom driven by Chinese demand has led to a boon for what we sometimes call the South China Territories. Indeed this from @YuanTalks will have looked good from Perth this morning.

The rally in industrial continues in . rebar limit up, surging over 6%

Yet according to the Sydney Morning Herald this is the state of play for wages.

But since 2012 and 2013, Australian workers have felt stuck in a holding pattern of slow wages growth. Wages for the whole economy increased by 1.9 per cent in the year to March just in line with inflation.

There are familiar issues on the over side of the balance sheet.

Families are also wrestling with rising electricity prices, skyrocketing property prices and high demand for accommodation has also forced up rents.

Even the professional sector has been hit.

When Sahar Khalili started work as a casual pharmacist eight years ago, she was paid $35 an hour. Over the years that has fallen to as low as $30 while her rent has more than doubled.

Actually there is something rather disturbing if we drill into the detail as productivity has done quite well in Australia ( presumably aided by the commodity boom) but wages have not followed it leading to this.

The typical Australian family takes home less today than it did in 2009, according to the latest Household Income and Labour Dynamics survey released this week.

These surveys are invariably a couple of years behind where we are but there are questions to say the least. Oh and the shrinkflation saga has not escaped what might be called a stereotypically Australian perspective.

“My beers are getting smaller,” he says.


Friday brought us the labour market or non farm payroll numbers. In it we saw that wage growth ( average hourly earnings) was at an annual rate of 2.5% which is getting to be a familiar number. There is a little real wage growth but not much which is provoking ever more food for thought as employment rises and unemployment falls. Indeed more and more are concentrating on developments like this reported by Forbes.

Starting pay at the Amazon warehouse, carved out of a large lot with a new road called Innovation Way designed for Amazon-bound trucks, is at $12.75, no degree required. For inventory managers with warehousing experience, the pay is $14.70 an hour and requires a bachelor’s degree.

The new warehouse offers 30 hour a week jobs because they slip under the state legislation on provision of benefits. In some parts of America they would qualify under the food stamp programme. No wonder that as of May some 41.5 million still qualified.

Yet the Wall Street Journal describes it thus.

a vastly improved labor market


This is a situation we have looked at many times and there is much that is familiar. Firstly the Ivory Towers have invented their own paradise where wages rise due to a falling output gap and when reality fails to match that they simply project it forwards in time. The media tends to repeat that. But if we consider the dangers of us turning Japanese we see that wages there are lower than 20 years ago in spite of very low unemployment levels. Over the past 4 years or so this has been always just about to turn around as Abenomics impacts.

My fear is that unless something changes fundamentally ( cold fusion, far superior battery technology etc..) real wages may flat line for some time yet. All the monetary easing in the world has had no impact here.





25 thoughts on “When will real wages finally rise?

  1. I liked the phrase in the blog that
    “Tokyo Electron introduced a new personnel system on July 1 in which salaries reflect the roles and responsibilities of employees”.
    What on earth was it doing before?

  2. I guess one of the key issues ( standing back from the subject, way way back ) is where is capitalism going in future?
    In my previous role as MD of a new business established in south east asia for an american multinational, I had a chance to see the better side of capitalism. We started with SFA and gradually, over a period of several years, built a substantial operation. The few workers i started with earned around £50 a month in 1985 and by the time I left we employed several hundred and they were earning twelve times as much and the managerial staff were on wages not far short of their UK equivalents. My proudest moment was giving a speech to the assembled workforce and feeling that i had played a part in creating jobs and seeing everyone becoming increasingly wealthy year by year. I believed at the time that capitalism floated all boats. We were keeping the shareholders happy with profits growth and making a real difference in the country we were based in.
    I contrast this with mature markets in the west where companies can only dream of the kind of growth rates we enjoyed. Unfortunately they still have to feed the hungry monster that is the stock market and the only way to do this is to depress wages which are the major cost in almost any business. This form of capitalism favours the few directly and the many only indirectly through pension funds etc. Unless something comes along to provide significant growth opportunities then I dont see this changing as the need to increase profit will dominate. Sadly the stock markets turn on any business that doesnt provide a steady improvement in the bottom line.
    I dont know what the answer is but I really believe that the issue is much more fundamental than GDP ups and downs and politicians and central bankers fidling at the edges.

    • Hi Pavlaki

      Your contribution to that success story in the Far East seems something to be proud of indeed. Perhaps the soundtrack should be “everyone’s a winner” by Hot Chocolate. As to the here and now my late father used to regularly question how things could grow year on year for ever? It would appear that wages have hit the equivalent of the wall in the marathon.

      • ‘As to the here and now my late father used to regularly question how things could grow year on year for ever?’

        The miracle of 2% inflation.If only they’d found it in the middle ages.

    • ‘I dont know what the answer is but I really believe that the issue is much more fundamental than GDP ups and downs and politicians and central bankers fidling at the edges.’

      Great post if I may say.

      Capitalism is in crisis.I do think that CBers have played a massive role in the way they’ve conducted monetary policy but I think that in itself is a symptom of a wider belief that technological improvements/education have allowed us to create ‘forever’ growth.

      What we have these days is a situation where CB’s have been allowed to buy their own country’s debts,shares in listed companies and a host of other assorted financial assets.From being the lender of last resort,they’ve become the buyer of first resort

    • Although your employees were earning 12 times their original pay when you left you do not say how much inflation had occurred in the time period in question.

      Before any objective analysis may be performed as to whether capitalism succeeded ion raising every employee’s standard of living that information relating to inflation over the same time period must be revealed as there was some heavy inflation in the Far East in those days and still now in some countries.

      • I don’t know about the Far East, but do think that there was a halcyon period in the USA after the war, when everyone in a job seemed to be better off each year. There is an overwhelming sense in the USA (where I travel a lot) that, with the exception of internet billionaires and an elite (bankers, lawyers etc), this has come to a grinding halt or gone into reverse. I am convinced that Trump was so popular is that, for the first time in a long time, someone running for office openly talked about this huge number of people who are simply not getting any richer and probably getting poorer.

  3. The question you could ask but don’t is: why should real wages rise, and you pose it on a general, not a specific basis, almost as a matter of right? Why should this be?

    There are circumstances where it is obvious why they should go up, a labour shortage being the most obvious case. However, we are now deep in a globalized economy and a labour market subject to international artbitrage so it is surely no surprise at all that workers in the developed economies have suffered whereas those in the developing economies are now much better off and, let’s face it,this is a triumph for the World as a whole as it has lifted so many millions from grinding poverty.

    The obverse of this is the decline of the unionised labour force in the West which means that bargaining power is much more skewed than it was forty years ago and this has contributed to the lag in real wages.

    However you pose the question in more general terms as if workers had a right to an increase in real wages but surely this is more of a moral or political question than an economic one. If I own a factory and invest to make it far more productive and workers have changed roles to make this happen then I might well reward them by pay increases well above the COL. But what if this is not the case and they have not changed their jobs at all? What is the economic case here for an increase in real wages? I can’t see it, ceteris paribus.

    It seems to me that you can make a case for individual increases in real wages but you cannot, as you seem to be trying to do, make a general case;the general arguments are moral and political whereas it is the specific cases that yield to economic analysis and I would suspect that these would disprove it rather than the converse.

    • one point you did not mention is that in general the GOP have expected in the past that wages for their work force to have increased over time , this then means the tax take increased ( thus solving a number of issues)

      however its apparent that the super rich cannot be taxed , the rich cannot be taxed more , and due to lack of demand for median middle class jobs ( or lack of supply ) the tax base is actually shrinking

      the poor of course only pay tax on consumption ( VAT and the like ) from their megre wages / subsidies

      when ( and not if ) 99% of the worlds wealth is owned by 1 man then democracy will be dead , and so will the markets

      it will be a water monopoly

      can real wages be made to rise – no , that will like be using a sieve to bail out water – you need to fix the other issues first ( and people don’t yet perceive them to be issues yet )


    • You make a very good point and it was not always the case that wages rose. For centuries, things didn’t move at all in parts of Europe. A workman in Krakow in 1775 earned no more than in 1425!
      We seem to be on a treadmill now, where static GDP/company profits/wages are all unacceptable. Growth is all important today.

  4. Hello Shaun,

    there are no pressures on wages to rise , in fact with the AI , WTO and other trade agreements and teccy its going backwards

    How can the European middle class compete with 4 billion Africans? ( projected figure for 2100 apparently ) for the vanishly small number of jobs ?

    there’s only so many hairdresser jobs too ……. ( barmen/persons are being replaced with AI too )

    And no, the pollies and CB dont know what the answer is either , apart from inflate asset prices .

    notice how they all do this , despite how well their respective economies are doing ?

    well paid jobs > low paid jobs > any job > work house


    • good bar/restaurant staff do so much more than parroting a preset menu. Being welcomed by a unique personality, explaining menu options making variations ….

      both Japan and Germany have been selling beer from vending machines for over 30 years

  5. The objective of any business is to maximise profit,if they could pay the proverbial bowl of rice they would.
    The rise of debt slavery added to decline in trade union membership has resulted in lower wage growth,sadly if you don’t stand up you get trampled.
    Let’s be clear an employer who is not increasing employees wages by the rate of inflation is imposing a real terms wage cut on hard working,hard pressed employees.
    I have sympathy for smaller employers but the greedy corporations who count profits in hundreds of millions but do not award inflation proof increases are profiteering at their employees expense,those who think trade unions are going to be much worse of in the future.

    • Hi Private Fraser

      There was a time when not every business thought so. Here is Henry Ford

      “Paying good wages is not charity at all-it is the best kind of business.”

      “If the boss stands in the way of men getting what they earn, he is not fit to be boss.”

      “A low wage business is always insecure.”

      “Cutting wages is not the way to recovery. Raise wages and improve the product.”

      But as you say there are few of his philosophy around these days.

  6. hi Shaun,

    the troubles ordinary people had in the 1930s plus the wars against fascism caused a political landslide against exploitative capitalism, ushering in decades of decent wages.

    Underpaying your staff such that they require benefits or food stamps should be a crime. Especially Walmart should be punitively fined and made to pay back state food stamp bills required by fulltime Walmart employees. the politicians who encourage this are oligarchy and those who claim to represent the people while tolerating it are frauds. I know you try to avoid politics, but voters need to vote responsible & hold the crooks accountable.

  7. Shaun,

    MMT proponent Bill Mitchell amongst others has highlighted that a job guarantee scheme would result in employers having to attract staff.
    Only when there is a real alternative to unemployment will wages rise in response.

  8. There is a basic truth of Neo-Liberalism, it’s business model requires rich customers and poor workers, square that one if you can. A successful nation needs well paid workers but corporations require the opposite, the only reason slavery doesn’t exist is because the state doesn’t allow it. The choice has long been clear to me, you can have a successful nation or all powerful corporations.


    • We export our slavery … just look for example at the construction of the stadiums for the world cup in Qatar. FIFA is after all a European company.

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