Why wages are not picking up in Japan: Labour reforms needed

TOKYO - Structural changes have been the main reason behind Japan’s disappointing wage developments, with aging equipment, lagging IT investment in the service sector, and inadequate training for part-time staff among the main reasons why labour productivity has come down, according to the French investment bank, Natixis.

“From a micro point of view, higher employment in low productive positions is behind wage stagnation, Natixis says. “More generally, because wages reflect productivity, slow wage growth is a natural economic consequence.

With this background, the Government needs to do more than simply putting pressure on companies to raise wages. While large companies responded positively to the government’s request, SMEs had difficulties to lift wages. As SMEs create about 70% of employment, their struggle reflects the structural issues that Japan is facing.”
 
Natixis says that while a corporate tax cut could help upgrade Japan’s capital stock, reforms in the labour market are needed to increase labour productivity and, thereby, wages.

“Two main reforms come to mind. First, eliminating the incentives to maintain a dual labour market by ensuring the principle of “equal pay for equal work”. Second, ruling out distortions in the current income tax system in favour of women taking low-pay/part-time jobs.

“These two measures would not only increase female participation in  the labour market but also labour productivity and, thereby, wages. It goes without saying that this is easier said than done as it boils down to eliminating Japan’s life-time employment system, which currently protects 70% of employees. 

“Still, without such labour reforms, Abenomics will most likely end up in a failure.”  www.natixis.com (ATI).