A Recap on “Why Are Wages Not Rising Despite the Labor Shortage?”

(This post is a shortened version of University of Tokyo Professor Genda Yūji’s article published in Nippon.com)

Japan’s “Hello Work” employment offices reveals that the ratio of job offers to job seekers have been increasing since 2010. As of May this year, there are only 2 people who can fill up a job opening that requires three persons. The problem is not in the shortage of labor but its supposed effect to the Japanese. Textbook economics would state that labor shortage would lead to an increase in wages since the supplier (laborer) can demand for it. However, this is not happening in actuality. In fact, wages have remained steady since the 90s yet the labor shortage has become more acute.

 

Photo credit to: https://www.ft.com

 

Various explanations have been provided to address this phenomenon:

 

    • Some say that more and more employees have non-regular status. 40% of the total workforce in Japan are non-regular workers, including baby boomers who have retired from their former regular jobs. Since their wages are lower and they comprise a huge chunk of the total workforce, the salary range has averaged down.
    • The Japanese Economy and Public Finance identified insufficient capital investment by enterprises as the reason for the stagnation of wage. They have pointed out that labor productivity has fallen sharply since Japan’s economic bubble in the 1990s. The government recommends that companies invest more to increase its productivity. That means expansions and acquisition of better equipment which would lead to more demand for workers to reach bigger profits. This then would increase the average pay.
    • However, the government’s slogan “dynamic engagement of all citizens” has paved the way for the increase in employment among Japanese women and elderly. This is seen to have tapered off the demand for a wage hike.
    • A chronic shortage of experienced and skilled worker has been observed. Employers say they lack time to do on-the- job trainings and teach them the needed skills to cope up with technology and their demands. They in turn want an employee that already has the needed ability and can immediately work with less supervision.

 

However, Prof. Yūji, stresses that there is a need to look at the structure of the labor market and the mindset of the laborers. Though wage cuts demotivates workers, having a steady pay make them less insistent on having wage increases. This explains why salaries have been stagnant for almost a score already. If the manpower however wants to push for a wage hike, Prof. Yūji suggests that companies can start with increased bonuses, even if only temporary in order to be flexible when there is an economic downturn, while maintaining a regular pay. In that way, it will be a win-win situation.

 

Reference: Why Are Wages Not Rising Despite the Labor Shortage?

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