Japan’s Wages Mask Rise of Hottest Job Market Since 70s: Economy

Photographer: Kiyoshi Ota/Bloomberg

An employee assembles a glass display case at the Nishio Glass & Mirror Co. factory in Tokyo. Close

An employee assembles a glass display case at the Nishio Glass & Mirror Co. factory in Tokyo.

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Photographer: Kiyoshi Ota/Bloomberg

An employee assembles a glass display case at the Nishio Glass & Mirror Co. factory in Tokyo.

Kazufumi Yamamoto is having such a hard time finding waiters and sushi chefs to fill jobs at Ganko Food Service Co. that he’s going to boost wages for the first time in more than a decade.

“Positions remain open for several months, leaving some restaurants heavily understaffed,” said Yamamoto, personnel head at the sushi-chain operator in Osaka. “The labor shortage has worsened to the point we have no choice but to increase pay.”

The troubles facing Yamamoto, 43, reflect the pressures of a labor force that’s shrinking, with just nine high school graduates on the hunt for a private-sector job now, down from 10 just five years ago. Smaller companies reliant on part-time workers are bearing the brunt, pressuring them into wage gains that have yet to be reflected in the broader job market.

While nationwide pay fell in the year through January, and will probably rise less than 1 percent this year, according to economists surveyed by Bloomberg News, smaller and mid-sized employers such as hand-cleaner maker Saraya Co. are considering salary gains of 2 percent or more. The nation is within a few years of an overheated job market that makes inflation, not deflation, Japan’s challenge, economist Masaaki Kanno says.

Photographer: Kiyoshi Ota/Bloomberg

Tomoyuki Nishio, chief executive officer of Nishio Glass & Mirror Co., left, speaks with an employee at the company's factory in Tokyo. Nishio said he can’t hire anyone unless he offers higher wages after the number of job applicants plunged. Close

Tomoyuki Nishio, chief executive officer of Nishio Glass & Mirror Co., left, speaks... Read More

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Photographer: Kiyoshi Ota/Bloomberg

Tomoyuki Nishio, chief executive officer of Nishio Glass & Mirror Co., left, speaks with an employee at the company's factory in Tokyo. Nishio said he can’t hire anyone unless he offers higher wages after the number of job applicants plunged.

“By 2017, the focus of the argument will shift to how to contain inflation -- once the fire is set, it spreads really quickly,” said Kanno, chief Japan economist in Tokyo at JPMorgan Chase & Co., who previously worked at the country’s central bank. “In two or three years, the wage increases will be more remarkable due to the labor market heating up.”

Too Hot

Kanno predicts the number of open positions for every job seeker will climb to 1.5 by 2017, from 1.04 in January, a figure unseen since 1974 -- when then-Prime Minister Kakuei Tanaka was implementing an unprecedented public-spending boom.

Prime Minister Shinzo Abe’s efforts to wring deflation out of the world’s third-largest economy have relied on monetary expansion that’s sent the yen down 15 percent against the dollar since the start of 2013. With nuclear reactors shuttered after the 2011 Fukushima meltdowns, energy costs have driven gains in consumer prices, which rose 1.4 percent in the year to January.

Wage rises would help insulate households against those cost-of-living increases, as well as encourage companies to keep boosting prices -- a dynamic that Abe is extolling as annual compensation talks with major employers conclude this month. He said in a December interview that he wants employers to increase pay by more than the pace of inflation.

Photographer: Noriko Hayashi/Bloomberg

University students attend Rikunabi Super Live Tokyo, a job fair hosted by Recruit Career Co., at the Makuhari Messe convention center in Chiba. This fiscal year ending March has seen the fewest college graduates in 13 years seeking jobs at private companies, falling to 425,700 from 443,100 five years ago, according to Recruit Works Institute. Close

University students attend Rikunabi Super Live Tokyo, a job fair hosted by Recruit... Read More

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Photographer: Noriko Hayashi/Bloomberg

University students attend Rikunabi Super Live Tokyo, a job fair hosted by Recruit Career Co., at the Makuhari Messe convention center in Chiba. This fiscal year ending March has seen the fewest college graduates in 13 years seeking jobs at private companies, falling to 425,700 from 443,100 five years ago, according to Recruit Works Institute.

Stagnation Years

While the nation’s labor force -- including employed people and those looking for work -- peaked in 1997, earnings kept falling as Japan suffered five recessions, a banking crisis and an appreciating exchange rate that eroded export competitiveness.

Now, the shrinking supply of potential workers coincides with an expanding economy and a central bank pumping unprecedented liquidity.

“It’s been more than 20 years since we’ve had a business environment like this, where we have to raise wages to attract workers,” said Yusuke Saraya, 62, president of Osaka-based Saraya, which he says is facing staff shortages in customer support, sales and production.

Tomoyuki Nishio, chief executive officer at Nishio Glass & Mirror Co., which makes display counters, said he can’t hire anyone unless he offers higher wages, following a plunge in the number of applicants.

“I will increase pay even more this year if business continues to improve,” said Nishio, whose Tokyo-based company counts Coach, Gucci and Chanel among its customers.

Youngsters Dwindle

Japan’s labor force declined to 65 million in January 2014 from a peak of 69 million in June 1997, led by younger workers. Those aged 15 to 24 tumbled to 4.9 million from 8.9 million over the same period, according to the Labor Ministry.

The thinning rolls of potential hires are also evident in the ranks of college students, with the number of graduates entering the job-search market in the private sector sliding to a 13-year low of 425,700 in the year through this month, according to Recruit Works Institute. The comparable number for high school grads dropped to 164,836 last fiscal year, down almost 19,000 from five years before, Labor Ministry data show.

Small services companies reported the lowest level of availability of workers since 1992 -- the year that Japan’s residential land-price bubble started to pop -- in a quarterly Bank of Japan survey in December. Japan’s unemployment rate was 3.7 percent in January, compared with the 4.4 percent average of the previous decade.

Sustained Inflation

“Wages are facing strong upward pressure because of the heating labor market,” said Junichi Makino, chief economist at SMBC Nikko Securities Inc. in Tokyo. “The government’s economic stimulus intensified the situation. Wage increases will feed into prices, getting the economy on the path for sustainable inflation.”

Pay, measured by labor cash earnings, fell 0.2 percent in January from a year before, a government report showed March 4. The measure will increase 0.6 percent in the fiscal year that starts April 1, lagging behind a 3 percent gain in consumer prices as the government raises the sales tax to 8 percent next month, Bloomberg surveys of economists showed in December.

Toyota Motor Corp. (7203), its parts makers and dealers continue to push back on union proposals to increase wages for workers in Japan, said Masamoto Azuma, chairman of the Federation of All Toyota Workers’ Unions. Some managers at the companies have said they can’t meet requests because higher wages would boost costs and that employment should be prioritized, he said.

Hitachi Ltd. is considering raising base pay as much as 0.5 percent, according to the Nikkei newspaper.

Summers Worries

“Base salaries won’t increase this year as much as Abe requests,” said Shuichi Obata, a Tokyo-based senior economist at Nomura Securities Co. “Even with the government push, we have to wait for a while to see wages rise more than prices.”

Economy Minister Akira Amari warned legislators this week that Japan isn’t yet out of deflation, while former U.S. Treasury Secretary Lawrence Summers said that risks to Japan’s rebound may be underestimated. With the first sales-tax increase since 1997 looming April 1, Summers said at a conference in Abu Dhabi “I worry about a larger jolt in Japan than many expect.”

At the same time, government stimulus efforts including reconstruction of Tohoku, the northern Japan region devastated by the 2011 tsunami, are stoking job shortages across the nation.

Charging More

“Many workers in Osaka have been drained to Tokyo or the Tohoku region,” said Tsuyoshi Abino, chief executive officer at Abino Construction Co., which is based in Himeji City, west of Osaka. “We used to pay 30,000 yen ($292) a day for dump-truck drivers 10 years ago, but the pay has doubled to 60,000 yen today, and still we don’t have enough dump-truck drivers.”

Tempstaff Co., Japan’s biggest temporary staff agency by revenue, is seeing surging demand from companies for clerical workers, especially in finance, construction and information technology, said spokeswoman Kiyoko Nakamata. The agency plans to boost the fees it charges companies for the temporary workers by 3 percent to 5 percent.

Scarcity of part-time workers helped send base pay for that group up 1.1 percent in the year through January, while that for full-timers was flat. Earnings for part-timers have increased every year but one in the past 10 years, signs of building pressure that’s on the verge of spilling over into the broader job market, according to Kanno at JPMorgan, who sees total wage rises exceeding 2 percent by 2016.

A “widening employment gap” will sustain wage gains, which could start exceeding inflation as soon as next year, Daiju Aoki, a UBS AG economist in Tokyo, wrote in a Feb. 28 note.

To contact the reporter on this story: Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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