Are falling real wages the future for us all?

The issue of wage growth is something we have found ourselves returning to time and time again. The cause is in one sense very simple there has been a lack of it. There are two components of this of which the first is just simply low numbers but the second is another reversal for the economics establishment . This is where we have seen employment gains and in some cases record low levels of unemployment but the wage growth fairy has turned out to be precisely that. As an example if we look back we see that the UK Office for Budget Responsibility opened with equations that would have UK wage growth above 5% in today’s environment rather than the 3% we have.


The leader in the pack in this regard continues to be Japan so let us go straight to the data released at the end of last week.

The inflation-adjusted average monthly wage fell 0.9 percent from a year earlier in 2019, dragged down by an increase in part-time workers, the labor ministry said Friday.

Average monthly cash earnings per worker, including bonuses, fell 0.3 percent to ¥322,689 ($2,900) on a nominal basis, the first decline in six years, according to preliminary data by the Ministry of Health, Labor and Welfare. ( Japan Times)

If we for the moment stick with the fact that wages fell we can then note that this happened in spite of this.

The unemployment rate was unchanged in December from the previous month, at 2.2 percent, reflecting an ongoing labor shortage due to the rapidly graying population, government data showed Friday.

In the reporting month the number of unemployed was 1.45 million, down 140,000 from a year earlier, according to the Internal Affairs and Communications Ministry. ( Japan Times January 31)

Although they do not mention it this equals the record low for the unemployment rate and we get more detail on the labour shortage below.

The number of people with jobs grew for the 84th straight month, up 810,000 from a year earlier at 67.37 million in December. Of those, 30 million were women, up 660,000 from a year earlier, and 9.02 million were 65 or over, up 470,000.

This is a success for the Japanese economy which has reached I think what economists used to call “full employment”. Actually if they saw the numbers below they would be predicting it would be party time for wage growth.

Separate data from the Health, Labor and Welfare Ministry showed that the job availability ratio in December stood at 1.57, unchanged since September. The ratio indicates that there were 157 job openings for every 100 people seeking jobs.

But reality has not been kind to that particular and it has discombobulated some Ivory Towers so much that they believe in it regardless. A case of Restaurant at the end of the Universe thinking.

Reality is frequently inaccurate

If we go back to the wages data we started with there were two components beginning with a real fall but also a nominal one. The latter I point out because when we look at Japan’s public debt burden it is not going to be solved with income taxes with nominal incomes falling. It is the opposite of what we call inflating away the debt.

The situation is so troubling that a scapegoat is required which are part-time workers.

The proportion of workers that are part-time reached a record 31.53 percent, up 0.65 percentage point from the previous year.

For those who want to know how much the Japanese get paid here you are.

Average monthly wages for full-time workers increased 0.3 percent, to ¥425,288, while those of part-time workers stayed flat at ¥99,758.

December wages are especially important in Japan as they are the main bonus season meaning they are around 175% of the average. So bonuses are low and whilst we do not get much of a sectoral breakdown we see that total manufacturing wages were 2.6% lower in December in real terms.

The index for real wages is now 99.9 or slightly lower than the 2015 average. This is quite a critique of the official policy of Abenomics which was supposed to raise wages in both nominal and real terms but as you can see has not done so.

Regular readers will know I have been concerned since the advent of Abenomics that it was really just another version of Japan Inc under the covers. Well in that scenario Japanese companies would be doing well but not raising wages.

The retained earnings of Japanese companies combined hit a record ¥463 trillion last year. Corporate earnings — which remain near record levels despite the setbacks of the past two years — have clearly not been invested enough in manpower.  ( Japan Times )

Whereas according to the Nikkei Asian Review the longer-term picture is this.

The growing ranks of nonregular workers puts pressure on average nominal wages, which remain 13% below their peak in 1997. From 2012 to 2018 nominal wages grew only 2.6%, labor ministry figures show.

United States

Friday lunchtime in the UK produced this.

Total nonfarm payroll employment rose by 225,000 in January, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in construction, in health care, and in transportation and warehousing.

This continued a pretty strong picture especially at this stage in the cycle.

After revisions, job gains have averaged 211,000 over the
last 3 months.

Now if we switch to wage growth we see this.

In January, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.44. Over the past 12 months, average hourly earnings have increased by 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees
were $23.87 in January, little changed over the month (+3 cents).

In nominal terms this is much better than in Japan but if we switch to real terms then we need to compare with this.

From 2018 to 2019, consumer prices for all items rose 2.3 percent.

I am taking the numbers as a broad sweep because we do not have the January data yet, But we see that whilst there is some real wage growth it is a bit under 1% per annum so not much.


The difference between the US and Japan is that there is some real wage growth in the former there is none in the latter. Can we explain that? There are two possible causes of which the first is demographics where Japan has a shrinking and ageing population whereas the US is growing. Also there is a structural issue where the Japanese are very resistant to price rises which in a reversal of the wages and prices spirals of the 70s and 80s in my home country seems to have infected wage growth too. The fear as Lily Allen would put it might be a case of the vapors.

I’m turning Japanese, I think I’m turning Japanese, I really think so
Turning Japanese, I think I’m turning Japanese, I really think so
I’m turning Japanese, I think I’m turning Japanese, I really think so
Turning Japanese, I think I’m turning Japanese, I really think…

For the economics establishment there is only pain because they continue to plough ahead with “output gap” style theories. Even worse because they failed in the GDP or economic output arena they switched to the labour market. It has turned out to be like playing 3 at the back in football and losing 3-0 and thus switching to 4 at the back and losing 5-0. That is because the labour market has is some places gone beyond what was called full employment and yet real wage growth is weak at best and has gone backwards in Japan which has a stellar employment situation at least according to conventional metrics.

Moving to the UK we finally got some real wage growth but we need to cross our fingers and there is still some distance to travel before we get right back where we started from. Hopefully we can at least regain the previous peak.



10 thoughts on “Are falling real wages the future for us all?

  1. Hello Shaun,

    its’ the effect of AI nibbling at the well paid jobs. As people retire from you could have expected then that the pool of younger workers could demand more. Not so , the jobs that are being left behind by the steady march of AI are part time and poorly paid , there are still too many workers for that kind of job .

    This is going to cause some major societal changes and I’ll bet the Ivory Towers will fall back on “surprise” and “no one could have seen this ” as always….

    Again blinkered thinking or group think abounds in this day and age.


    • Hi Forbin

      Just on cue I note this being reported by Reuters.

      “We need to embrace the mindset that inflation a bit above target is far better than inflation a bit below target in today’s economic environment,” San Francisco Federal Reserve Bank President Mary Daly said on Monday in remarks prepared for delivery in Dublin, Ireland.

      So if wages growth is struggling you will make everyone worse off. After all the wages fairy rarely turns up these days. I mean in reality as opposed to Ivory Tower fantasies.

  2. Great article as always Shaun.

    I received a shock when I recently received my water bill, it had gone down??? And hopefully energy bills will be heading lower as well. Good news possibly. But before Carnage gets in a flap with a possibly derailing of his continuing mission to destroy uk living standards, council tax and transport rises will more than make up for this.

    After all, as every economic writer for the bbc indicates inflation is good.


    • Haven’t you heard that Mark’s got a new job? Unfortunately, he won’t be leaving alone your living standards but, instead, he’s widening his scope to the whole world! His new role is UN Special Envoy for Climate Action and Finance (?! yeah, me too) and I expect he’ll start off with a lecture tour of the world by private jet . . .

  3. Off topic of concern to people now is a health centre been closed down today after a staff member tested positive for Coronavirus and many will have seen scenes of China forcibly taking people away.

    Well the Department of Health now taking similar measures:

    “The Department of Health has introduced new measures in England that mean those in quarantine will not be free to leave, and can be forcibly sent into isolation if they pose a threat.
    They were announced because a passenger on the first UK flight from Wuhan, who is being held in quarantine on the Wirral, has been “threatening to abscond”, according to the BBC’s political correspondent Iain Watson.”

    All staff have to isolate themselves this isn’t good many patients attended the health centre will be very concerned.

    This situation will create a lot of fear and I expect more news from Department of Health they will be in panic mode at the moment not wanting to create fear but at the same time give proper warnings. A health centre could have hundreds of patients attending in a few days all will be worried and their families whether they need to self isolate.

    As for wages a struggling economy would normally create low or falling wages, the UK may be seeing rising wages but they seem to have slowed down from the recent peak.

    • Hi Peter

      Yes today’s news must be concerning for staff and patients at that GPs in Brighton. Especially those who are already weakened due to illness.

      But it is also true that some flu epidemics have been much worse than this has been so far, Fear of the unknown is a powerful emotion. I would not want to be on that liner quarantined by Japan as that has more than a few elements of one of my favourite films, which is Alien.

  4. Hi Shaun.
    Until Thatcherism a man could feed, clothe and house his family, and provide an annual holiday of sorts, on his wages alone, while his wife worked only for “pin money”.
    Reducing real wages are not a thing of the future.

    • If the UK wages took account of RPI we are on average worse of than 2008. Says it all really I don’t get carried away with stats when they have been distorted.

    • Not Thatcherism as this is a global phenomenon – as women went out to work and a combined wage meant that more could be afforded then prices went up to match.

  5. As predicted by myself and many others, the Brexit vote and subsequent Tory elections were extensively funded by millionaires and indeed billionaires whose interest was solely in turning GB UK Ltd into the worlds biggest low wage off-shore tax haven for a big share of all the dirty money sloshing around the planet. And so it came to pass, and turkeys really did vote for Christmas.
    With the pencil still fresh on the ballot papers, Johnson’s Alt-Right HMG has already proposed a ludicrously short “10 week consultation”, which, like a Yes Prime Minister’s leak inquiry, one suspects the decision has already been taken, bids will be accepted and thus HMG is simply “going through the motions” of “democracy”.
    From an initial (pre-election) 10 Free Ports, The Alt-Right Centre for Policy Studies (CPS) is already proposing 30+ Free Ports, with the first ones opening up within a year. (See URL below)
    In the initial HMG briefing, taken from the Grauniad, (URL below), we find “location” will be anywhere, not just Ports and that the low-wage economy is already front of house.
    Read and weep, Labour converted “working class” electorate, “full employment”, maybe , but living wage? Dream on! Welcome back the Port Tally Man? Oh dear!

    ‘[Free] zones – which do not necessarily have to be located in a port – where no duty is paid on goods until they enter the full UK market, meaning none at all is paid if they are re-exported from the port….
    …there could be measures to “reduce the costs of hiring workers working in Freeport sites”, the government said, not specifying how this could be done.’

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