MG -------------------------------------- Japan's wageless recovery By David Pilling Financial Times November 10 2004
In recent months, officials at the Bank of Japan have been scratching their heads at a puzzling phenomenon. In spite of nearly three years of robust economic growth, a run of dazzling corporate profits and recent signs of a tightening labour market, wages have been falling.
Even in the second quarter, when the economy was growing at at an exhilarating 6 per cent a year, total remuneration was still falling by 1.1 per cent. This has been the seventh straight year of decline. If the US has experienced a largely jobless recovery, Japan is going through a wageless one.
The failure of economic growth and corporate profits to feed through to higher remuneration, stronger demand and rising prices has short-circuited what many economists had assumed was a straightforward path to inflation. In August, the wholesale price index rose 1.8 per cent year on year, but in the same month consumer prices fell 0.1 per cent. Consumer prices have been falling since 1997.
In the careful language of central bankers, the BoJ registered its surprise at the continued fall in remuneration, warning that failure to re-establish the profit-wage-inflation transmission mechanism could threaten the bank's fairly rosy economic outlook and its forecast of mild inflation next year.
"If firms continue to restrain labour costs persistently, delayed improvement in household income could cause household consumption to deviate below the [bank's expectations]," it said.
A few streets from the Bank of Japan's stately offices in Nihonbashi, central Tokyo, are the sparkling new headquarters of a company whose thriving business helps shed light on the puzzle. Pasona, which occupies several glitzy, football-pitch size floors of a modern office block, is one of dozens of temp agencies - agencies that place temporary or contract workers with companies - that have sprung up to satisfy corporate Japan's seemingly insatiable appetite for part-time staff.
Since 1997 when just 15 per cent of the workforce was part-time, use of non-regular staff has nearly doubled to between 25 and 30 per cent, depending on the definition.
Figures from the public management ministry, which only go up to 2002, show that in the five years from 1997, the number of full-time workers fell by more than 4m to 34.6m. Over that period, those classified as part-time rose by 1.7m to 12.1m; the number of contract workers leapt from 966,000 to 2.5m; and the number of temps sent from agencies such as Pasona rose from 257,000 to 721,000.
By March last year, a separate survey showed the number of temps registered at staffing agencies had jumped again to more than 2m.
The dramatic shift from a principally full-time workforce to part-time labour helps explain why companies have been able to keep a lid on wage bills.
"If you look at wages of regular workers, they have gone down to some extent," says Atsushi Seike, professor of labour economics at Keio university and a leading expert on Japan's labour market. "But the major source of the decline in the average wage is the very large increase in the number of temporary, part-time and contract workers."
Because of Japan's cultural and legal restrictions on firing workers, the slow death of Japan's postwar labour system - half-correctly characterised as the lifetime employment model - has been carried out almost surreptitiously. Since 1997, when a series of financial crises persuaded corporate Japan that it needed to restructure or die, companies have executed a combination of hiring freezes, early retirement plans, outsourcing and employment of part-time and temporary staff to slash their wage bills.
Call centres, an almost unknown phenomenon just a few years ago, have sprouted up in prefectures from Okinawa to Hokkaido as companies quietly shift work from permanent staff to those hired on short term contracts.
The transformation has been helped along by legislation, which until fairly recently discouraged flexible labour practices. Only in 1986 did the government pass a law recognising temporary work. At that time, only 13 categories of temporary jobs were permitted, a figure that rose to 26 in 1999. In March this year, almost all restrictions were lifted and, for the first time, manufacturing companies were able to hire part-timers.
Toyota, considered a poster boy for Japan's job-for-life culture, promptly said it would hire 500 temporary workers. More than a fifth of Japan's factories are hiring temporary staff, according to a recent survey in the Nihon Keizai newspaper, while more than four-fifths are considering doing so.
Heizo Takenaka, the former academic turned economy minister, says: "By increasing part-time labour, companies are decreasing the average cost of labour. Our lifetime employment system is becoming more flexible and the average wage is decreasing. We are in the middle of a process that is bound to continue."
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