Japan Is Growing But Wages Have Barely Budged. Why?

For Japan’s mission to revitalize its once roaring economy, getting wages to rise is crucial. Conditions appear ripe for fatter paychecks: the tightest labor market since the 1970s, eight straight quarters of economic growth and record profits for Japan Inc. Yet economists expect only a 1 percent pay rise this year. This would be the biggest since 1997, but hardly enough to power a consumption boost to sustain stronger economic expansion. So why does Japan so badly trail the U.S.’s latest 2.9 percent increase in salaries and the Eurozone’s 1.6 percent rise? Here are some reasons.

Japan’s aging, shrinking population has squeezed the labor market. The job-to-applicant ratio is at levels unseen since the mid-1970s and unemployment has dropped to the lowest since 1993. One notable success of Prime Minister Shinzo Abe’s so-called Abenomics program -- his broad strategy to revive the economy -- has been to encourage more women to work. Ironically, that may be stifling overall wage increases, since the labor force is now growing even as the population dwindles. What’s more, many of the women workers are in lower-paid jobs, as are the older Japanese who are rejoining the workforce.