Three Measures Of Slack In Japan’s Labor Markets
Japan’s salarymen
are famous for their long-hours culture.
There’s even a word — karoshi — for death by
overwork. Why hasn’t that translated into
higher wages?
Headline unemployment is at an enviably low
3.6 percent and corporate profits are strong.
The trouble is that substantial hidden
unemployment has kept salaries stagnant.
Wages in 2014 eked out a meager 0.8 percent
increase.
Hopes for a turnaround are focused on the
spring round of wage negotiations. Rengo —
Japan’s biggest labor union — has asked for an
inflation busting 4 percent raise for its
members. The Bank of Japan has said a
minimum 1 percent is enough to keep its
reflation strategy on track.
How likely are Japan’s workers to see a
bumper salary increase? The latest labor
market data — showing a 1.3 percent annual
increase in wages in January — is a hopeful
sign. A more detailed answer comes from
examining alternative measures of slack in the
labor market.
In the U.S., debate focuses on three measures.
Short-term unemployed are more likely to find
work and so generate more upward pressure
on wages. Marginally attached workers and
involuntary part-time workers reflect hidden
unemployment — pulling in the opposite
direction.
Short-Term Unemployment Exert Upward
Pressure on Wages
For Japan, short-term unemployment —
measured as those unemployed for less than 6
months — has edged up as a share of total
unemployment. At the end of 2012, when
Prime Minister Shinzo Abe was elected, short-
term unemployment was 41 percent of the
total; now it is 43 percent.
Japan’s Labor Force Survey includes a measure
of workers not in the labor force but wishing
to work. Adding this to the number
unemployed gives a measure similar to U5 in
the U.S. — unemployed plus marginally
attached workers. Based on that, Japan’s
unemployment rate is currently 9.1 percent,
down from 9.6 percent at end 2012 and the
lowest level in more than a decade.
Hidden Unemployment High But Falling
Japan’s LFS also includes a measure of those in
irregular work because they have not found a
job as a regular employee. Adding that into
the mix produces a measure similar to U6 in
the U.S. – unemployed + marginally attached
workers + involuntary part time workers.
Based on that measure, Japan’s unemployment
is currently 13.9 percent, down from 15.4
percent at the start of 2013 — the start of the
series.
What does that imply for the current wage
negotiations? On the one hand, unemployment
broadly understood remains substantially
higher than the headline figures suggest. It’s
also higher than equivalent measures in the
U.S, where U6 is currently 11.3 percent. On the
other hand, all the measures of unemployment
are at decade-plus lows and moving in the
right direction.
Rising wages are critical to the Bank of Japan’s
reflation strategy. With hidden unemployment
high, Rengo’s bold bid for a 4 percent raise
looks ambitious. With slack continuing to fall,
Japan’s hard-working salarymen could still be
set for an inflation-beating rise.
