More Jobs for Japan, But What About More Pay?

By Eleanor Warnock

Prime Minister Shinzo Abe?s pro-growth administration has earned itself another gold star: the lowest unemployment rate in nearly five years.

Yet economists say the real measure of Mr. Abe?s success will depend more on whether an improvement in the jobs market will translate into higher wages and the greater spending needed to help put the world?s third-largest economy on the path towards long-term expansion.

The unemployed made up just 3.9% of the Japan?s work force in June after seasonal adjustment. That is the lowest level since October 2008, before the global financial crisis hit Japan?s economy, a government official briefing reporters said.

Economists say wages could rise if the number of those without a job keeps falling because companies will have to pay more to attract a shrinking pool of job-seekers. That would in turn put more money in consumer?s wallets, and support spending that could power growth. As household consumption makes up nearly 60% of total annual output, it is a major driver of economic growth.

But they say the jobless figure will have to fall to between 3.0% and 3.5% for that to happen, a feat easier said than done. The last time Japan?s unemployment rate touched 3.5% was in 1997.

Hidenobu Tokuda, an economist at Mizuho Research Institute, said non-manufacturing firms are likely already scrounging for workers, but that there are still too many workers looking for too few jobs in Japan?s traditional engine of growth, the manufacturing sector, where production is still recovering.

?It?s hard to envision a quick recovery,? he said.

Taro Saito, an economist at NLI Research Institute, said a sales tax hike due in 2014 could also delay a recovery in the jobs market and an improvement in base pay.

?The sales tax hike will make the unemployment rate tick up temporarily as companies scale back due to a drop in demand,? he said. ?Wages will likely rise due to higher overtime pay and bonuses, but those are only a small part of overall compensation, and it could take years for overall wages to improve? thanks to a stronger labor market.

Source: http://blogs.wsj.com/japanrealtime/2013/07/30/more-jobs-for-japan-but-what-about-more-pay/?mod=WSJBlog

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