Getting Japan’s companies to raise wages by 3 percent per year is one of Prime Minister Kishida Fumio’s declared goals, just as 2 percent annual hikes was a goal for Abe Shinzo before him. And yet, like Abe, Kishida seems to be doing little more than publicly urging companies to hike wages and offering a different version of a tax break that’s been offered periodically for years. The latter has proven ineffective, partly because it’s just temporary and companies don’t want to make a permanent commitment for a temporary benefit. Unless Tokyo is willing to address the root of the problem, Kishida’s efforts will prove as fruitless as Abe’s.
Japan is hardly the only rich country where real (i.e., price-adjusted) wages have been suppressed in the last few decades. But its performance on this front is second only to Greece, virtually no growth in a quarter century. Across the mature economies, wages have stopped doing what they had been doing for much of the past two centuries: growing over the long term at around the same rate as GDP. During 1996-2019, productivity, i.e., GDP per work-hour, grew 30 percent in 16 rich countries. However, real hourly compensation (wages plus benefits) grew only 19 percent. While Japan’s productivity growth more or less matched the others, labor income grew a negligible 3 percent, creating the biggest gap between productivity and wages among OECD countries. This performance is particularly shocking considering that, until recently, Japan’s...
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