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Matthews Asia Weekly

Greeters at a Tokyo Department Store bow ahead of the day's opening hour.

Japan: Scrutinizing Wage Data

Week of August 28, 2015

We often look to macroeconomic statistics as a reference point into understanding how economies are performing. However, it’s equally important to consider the statistics you’re looking at and understand any related limitations to the data. What you’re looking at may be a bit different from reality.

Such is the case with wage trends in Japan which we think are a bit better these days than what headlines may suggest. When people discuss the topic of wages in Japan, they are usually referring to average monthly cash earnings that are announced by the country’s Ministry of Health, Labour and Welfare. Accordingly, several recent headlines suggest that wage trends are not particularly robust. However, in my opinion, the typical calculation method is a somewhat imperfect way of evaluating such wage movements. 

First, we need to consider that there is a change in the mix of full-time and temporary or part-time workers. Japan has been adding more such workers to its labor force, particularly with the increase in female labor. Not surprisingly, these temporary workers have relatively lower pay than full-time workers. 

The catch, as I see it, is that the average monthly cash earnings statistic does not adjust for the change in the work force composition. So, as more part-time workers join the workforce, this results in a lower average wage. But is that really telling the whole story? Even though Japan’s temporary and part-time workforce may earn relatively less in wages, without employment, they would be making nothing. The statistic does not capture the improvement of income from zero. 

Additionally, some of the fluctuation can be blamed on the fact that there is no adjustment for hours worked, and the timing of bonus payments can also have large effects on the monthly figures.

What may be a more telling approach is to calculate hourly wages to adjust for the mix between full-time and part-time employees, as well as use a 12-month moving average to smooth out bonus timing issues.  When considered in this way, wages in Japan have been consistently growing at around 1% year-over-year for the past two years, which is much better than what the headline figures suggest. 

It is also important to consider alternative sources to make sure your conclusion checks out. A survey by one of Japan’s leading job placement companies shows that wages for temporary and part-time workers in the major urban areas of Tokyo, Kansai and Nagoya are actually rising steadily. In June, hourly wages for temp workers rose roughly 3% year-on-year while hourly wages for part-time workers increased about 1%. Additionally, Japan’s minimum wage was lifted 2.1% this year on top of its 2% increase last year, providing a boost at the lower end of the wage curve.  

Macroeconomic statistics are easy-to-use guideposts, but just because everyone looks at something one way doesn’t mean it’s the best way, or that there aren’t any caveats. At Matthews Asia, we strive to look under the hood for a more complete picture of what’s going on in Asia.   

Kenichi Amaki 
Portfolio Manager 
Matthews Asia

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.