This morning has brought news from the land of the rising sun or Nihon. Actually it is news that much of the media has been churning out over the Abenomics era when they have tried to report wage growth when there has not been any. However today the Ministry of Labor published some better news of the real variety.
Nominal cash earnings rose 2.1 percent year-on-year in March, the fastest annual gain since June 2003. It followed a revised 1.0 percent gain in February.
Regular pay, which accounts for the bulk of monthly wages, grew 1.3 percent in the year to March, the biggest gain since July 1997, while special payments jumped 12.8 percent as many firms offered their employees end-of-the-year bonuses.
Overtime pay, a barometer of strength in corporate activity, rose an annual 1.8 percent in March versus a revised 0.4 percent increase in February. (Reuters)
As you can see these numbers are something of a landmark in the lost decade era as we note the best overall earnings numbers since 2003 and the best regular pay data since 1997. Overtime pay was up too which is intriguing as the Japanese economy has not had the best start to 2018 and may even have shrunk in the first quarter ending a run of growth. Maybe this year Japanese employers are actually fulfilling their regular promises to raise wage growth.
Care is needed in that this is only one monthly number but after some revisions we see that 2018 so far has recorded annual wage growth of 1.2%,1% and 2.1%. These are low numbers but in the context are a shift higher. This can be explained if we look at the index for such numbers which is still only 101.9 after being set at 100 in 2015. We get an idea as it was 100 in 2014 as well and 100.6 in 2016 and 101 in 2017. Also we need to be aware that the main months for pay in Japan come in June/July and particularly December as for example pay in December is around double that for March but for now let us move on with a flicker of spring sunshine.
Is this the revenge of the Phillips Curve?
No doubt it is party time at the Ivory Towers although many may not have spotted this yet as of course news reaches them slowly. However I am still something of a “party pooper” on this subject as it still does not really work. Here is a tweet from a discussion I was involved in yesterday.
I continue to find these charts on labour force participation astonishing pic.twitter.com/526t1bXmfe
— Toby Nangle (@toby_n) May 8, 2018
As you can see the state of play is very different between the American situation which we have looked at many times and the Japanese one. Female participation in the labour force changed with the onset of the lost decade era and male participation has picked up in the era of Abenomics although it had started around the beginning of the credit crunch.
If we look at the Abenomics impact I will let you decide if a major swing is good or bad. You see in the age group 55-64 the female participation rate is up by 10.2% in the past 6 years and the male one by 6.6%. I have written in the past that Japan looks after it older citizens well but there have been more and more suggestions that this is if not forced due to difficult circumstances. From the Independent on the 23rd of April.
For decades prior to this trend, it was a tradition for families and communities to care for their older citizens, but a lack of resources is making that harder to do so.
With the older population feeling more and more isolated as a result of this, women especially have turned to a life of crime in the hope that prison will provide them with a refuge and a home.
Returning to conventional economics there is also this to consider.
The number of unemployed persons in March 2018 was 1.73 million, a decrease of 150 thousand or 8.0% from the previous year. The unemployment rate, seasonally adjusted, was 2.5%. ( Japan Statistics Bureau).
These are extraordinary numbers as it was 3.9% in 2007 so it has been singing along with Alicia Keys.
Oh baby
I, I, I, I’m fallin’
I, I, I, I’m fallin’
Fall
We cannot rule out the possibility it will fall even further as it was 2.4% in January. Also it is being combined with rising employment.
The number of employed persons in March 2018 was 66.20 million, an increase of 1.87 million or 2.9% from the previous year.
Inflation
I though I would add this into the mix as it provides something of an irony. The view of the Bank of Japan has been for so long that an annual inflation rate of 2% is just around the corner. Yet in its last report it lost the faith.
In terms of the outlook for prices, most members shared the view that the year-on-year rate of change in the CPI was likely to continue on an uptrend and increase
toward 2 percent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations.
And later this.
the momentum of
inflation was not yet strong enough to achieve the price stability target of 2 percent at an
early stage.
Of course now with an oil price of US $77 for a barrel of Brent Crude they may see an inflationary push bringing them nearer to their objective. Of course they think inflation at 2% per annum is a good thing whereas I do not. After all even the recent better wage data would leave real wages flat in such a scenario.
We will have to see if oil prices remain here but for now the news just coming through that Saudi Arabia has intercepted two ballistic missiles seems set to support it.
Comment
Let me start with some good news for Japan which is that on what used to be called the Misery Index it is doing very well. It used to add the unemployment rate ( 2.5%) to the inflation rate ( 1%) and as you can see it is rather low. Very different to the double-digit numbers from the UK when it was a popular measure.
But for economic theory and for the Phillips Curve in particular this is much less satisfactory. This comes partly from asking where has it been? Let me hand you over to the Bank of Japan.
(1) the actual unemployment rate had been substantially below 3.5 percent, which had formerly been regarded as the structural unemployment rate,
So wage growth should have been surging for ages and it has not. Now we face a situation which may be more like a cliff-edge that the smooth Phillips Curve. This is because on every measure Japan has been approaching full employment and in the mad world of economics 101 has in fact passed it.
(2) the recruitment rate of new graduates and the employment rate of women had risen
considerably.
In fact if you look at the demographic situation full employment seems set to be lower than it was due to the aging population as so far rising participation has offset it. But here is the rub if participation had not changed then unemployment would be below 2% now as we are left wondering what level would generate some real wages growth?
Meanwhile if we look back at the US participation data there were some chilling responses as to the cause. They looked at something which has troubled us before on here.
www.bbc.co.uk/programmes/b09yfqsy#play