Today gives us an opportunity to take a look at an issue which has dogged the credit crunch era. It is the (lack of) growth in wages and in particular real wages which has meant that even before the Covid-19 pandemic they had not regained the previous peak. That is one of the definitions of an economic depression which may well be taking a further turn for the worse. It has been a feature also of the lost decade(s) in Japan so we have another Turning Japanese flavour to this.
The Ministry of Labor released the July data earlier and here is how NHK News reported it.
New figures from the Japanese government show that both wages and household spending fell in July from a year earlier amid a resurgence in the coronavirus pandemic.
Labor ministry data show that average total wages were down 1.3 percent in yen terms from a year ago, to 3,480 dollars. It was the fourth straight monthly drop.
Overtime and other non-regular pay dropped nearly 17 percent, as workers put in shorter hours.
A ministry official says that despite some improvements, the situation remains serious because of the pandemic.
I find it curious that NHK switches from Yen to US Dollars but I suppose it has not been that volatile in broad terns in recent times. That is awkward for the Abenomics policy of Prime Minister Abe which of course may be on the way out. It was supposed to produce a falling Yen. Also it was supposed to produce higher wages which as you can see are falling.
The issue here is summarised by Japan Macro Advisers.
Wages in Japan have been decreasing relatively steadily since 1998. Between 1997-2019, wages have declined by 10.9%, or by 0.5% per year on average (based on the data before the revision).
The Abenomics push was another disappointment as summarised by this from The Japan Times in May 2019.
Japan’s labor market has achieved full employment over the past two years. Unemployment has declined over the past two years to below 3 percent—close to the levels of the 1980s and early 1990s—after peaking at 5.4 percent in 2012…………..The puzzling thing is why wage growth has been so sluggish despite the apparent labor shortage. It is true that average wages turned positive in 2014 and increased 1.4 percent in 2018. Nonetheless, regular pay, or permanent income, rose a paltry 0.8 percent in 2018. In real terms, average wage growth has failed to take off and recorded just 0.2 percent in 2018.
That is in fact a rather optimistic view of it all because if we switch to real wages we see that the index set at 100 in 2015 was 99.9 last year. So rather than the triumph which many financial news services have regularly anticipated it has turned out to be something of a road to nowhere. Any believers in “output gap” theories have to ignore the real world one more time.
The Japanese owned Financial Times has put its own spin on it.
“Buy my Abenomics!” urged Japanese prime minister Shinzo Abe in 2013. And we did.
No we did not. Anyway their story of triumph which unsurprisingly has quite a list of failures also notes this about wages.
Nor was this the only way Abenomics undermined its own credibility. For example, the government never raised public sector wages in line with the 2 per cent inflation target. Why, then, should the private sector have heeded Mr Abe’s demand for wage increases?
If only places like the FT had reported that along the way. But the real issue here for our purposes is that even in what were supposed to be good times real wages went nowhere. So now we are in much rougher times we see a year where they fall and we note that this adds to a fall last year. Indeed partly by fluke the fall for July is very similar to last year, but we look ahead nervously because if wages had already turned down we seem set for falls again.
In terms of numbers average pay was 369.551 Yen in July and a fair bit or 106.608 Yen is bonuses ( special cash earnings). The highest paid is the professional and technical one at 542,571 and the lowest is hotels and restaurants at 124,707 Yen. Sadly for the latter not only do they get relatively little it is also falling ( 7.3%)
Somewhat chilling is that not only is the real estare sector well paid at 481.373 Yen it is up 12.3% driven by bonuses some 30% higher. So maybe they are turning British. Also any improvement in the numbers relies on real estate bonuses.
The latest real wage numbers pose a question.
For June 2020, average regular pay, before tax and other deductions, for employees in Great Britain was estimated at £504 per week in nominal terms. The figure in real terms (constant 2015 prices) fell to £465 per week in June, after reaching £473 per week in December 2019, with pay in real terms back at the same level as it was in December 2018.
The real pay number started this century at £403 per week but the pattern is revealing as we made £473 per week on occasion in 2007 and 2008. So we were doing well and that ended.
Actually if we switch from the Office for National Statistics presentation we have lost ground since 2008. This is because the have flattered the numbers in two respects. One if the choice of regular pay rather than total pay and the other is the choice of the imputed rent driven CPIH inflation measure that is so widely ignored.
There was something of a curiosity here on Friday.
In August, average hourly earnings for all employees on private nonfarm payrolls rose by 11
cents to $29.47. Average hourly earnings of private-sector production and nonsupervisory
employees increased by 18 cents to $24.81, following a decrease of 10 cents in the prior month.
If you do not believe tat then you are in good company as neither does the Bureau of Labor Statistics.
The large employment fluctuations over the past several months–especially in industries with
lower-paid workers–complicate the analysis of recent trends in average hourly earnings.
If we look back this from the World Economic Forum speaks for itself.
today’s wages in the United States are at a historically high level with average hourly earnings in March 2019 amounting to $23.24 in 2019 dollars. Coincidentally that matches the longtime peak of March 1974, when hourly wages adjusted to 2019 dollars amounted to exactly the same sum.
There has been an issue with real wages for a while as the US, UK and Japanese data illustrate.The US data aims right at the end of the Gold Standard and Bretton Woods doesn’t it? That begs more than a few questions. But with economies lurching lower as we see Japanese GDP growth being confirmed at around 8% in the second quarter and the Euro area at around 12%. Also forecasts of pick-ups are colliding with new Covid-19 issues such as travel bans and quarantines. So real wages look set to decline again.
The next issue is how we measure this? The numbers have been shown to be flawed as they do not provide context. What I mean by this is that we need numbers for if you stay in the same job and ones for those switching. If we look at the US we see recorded wage growth because those already having the disadvantage of lower wages not have none at all as they have lost their job. That is worse and not better. This opens out a wider issue where switches to lower paid jobs and lower real wages are like a double-edged sword. People have a job giving us pre pandemic low unemployment rates and high employment rates. But I would want a breakdown as many have done well but new entrants have not.
There has been a contrary move which has not been well measured which are services in the modern era which get heavy use but do not get counted in this because they are free. Some money may get picked up by advertising spend but to add to the problem we have we are also guilty of measuring it badly