Japan's labour market is tight. So why aren’t wages rising?

TRIMLY DRESSED deliverymen, polite and punctual, are ubiquitous in Japan. So it was shocking to see one of them kicking his parcels and hurling his trolley outside a block of Tokyo flats after apparently finding no one at home. Captured on a camera phone last December, this incident of “parcel rage” went viral, forcing Sagawa Express, one of Japan’s biggest delivery companies, to say sorry to its customers. Many Japanese will have felt sympathy, though, for the video’s frazzled star.

Over 10% of the country’s firms admit that some workers frequently put in more than 100 hours of overtime in a month. A manager at a nuclear plant in Fukui prefecture worked twice that long in February 2016 before killing himself two months later. The problem is especially acute in low-skilled service industries. Over the past two decades, e-commerce has vastly increased the number of parcels handled by firms like Sagawa. Last year, one employee committed suicide after being violently bullied by his boss.

In a survey in 2015 by the Japan Institute of Labour Policy and Training, some workers blamed their own lack of ability for why they put in so many extra hours. Others dutifully replied that overtime was necessary to achieve satisfactory results. But the two most common responses were straightforward economics: lack of staff and extreme fluctuations in demand.

Both of these forces are leaving their mark on Japan’s labour market. The number of people of working age (15-64 years old) has fallen by about 3.8m since December 2012, when Shinzo Abe, Japan’s prime minister, returned to power. But the number of people actually working has increased by 2.2m. Almost everybody seeking a job has one: unemployment fell to just 2.8% in February, the lowest rate since 1994. Demographic decline has collided with an upswing in labour demand.

This combination should be highly inflationary. Scarce workers should be demanding higher wages, forcing firms to charge their customers higher prices. But pay and prices remain subdued. In their negotiations with employers, Japan’s labour unions have shown none of the aggression that the Sagawa delivery man inflicted on his parcels. Although base pay (excluding bonuses and overtime) has stopped falling in the past two years, it increased by only 0.2% in 2016. That has left inflation well below the 2% target pursued by the Bank of Japan (BoJ).

Japan’s wages remain flat partly because strong demand has resulted in an increase in the supply of labour rather than its price. Japan now hosts more than 1m foreign workers, up from 680,000 in late 2012. More importantly, the number of women and elderly men in work has increased by more than 2m over that period. Some of these extra hands have been pushed into work by financial anxieties. But others are pulled by economic opportunity. Mr Akira, who guides traffic with an illuminated baton outside a Burger King in Tokyo, is one of the latter. Aged 73, he prefers to stay physically active by earning money from a job rather than paying money to a gym. With the extra yen, he can afford to take his wife on bus trips to hot springs in Nikko and Kusatsu.

The rising share of part-timers in Japan’s workforce has also dragged down average pay gains. The aggregate compensation of all employees combined (which reflects employment gains and pay gains) increased by 2.3% in nominal terms last year, the fastest rate this century (see chart).

Market forces do not affect large swathes of Japan’s workforce. The pay of full-time workers in big firms is not responsive to labour-market tightness, according to a study published by the BoJ. These beneficiaries of life-time employment do not fear layoffs in hard times and cannot expect pay rises in good. But these workers do demand higher pay to offset past inflation. So, if peripheral workers’ pay rises by enough to lift consumer prices a little, that will eventually result in stronger core wages, adding to inflationary momentum.

To attract and retain workers, some firms are offering perks other than pay. They are allowing employees to settle in one place, rather than yanking them from one branch to another at short notice. The government is also encouraging people to clock off at 3pm on the last Friday of each month (so-called “Premium Friday”). Many unions are also bargaining for shorter workweeks. Last month Rengo, Japan’s leading union federation, reached a deal with the country’s largest business lobby to limit overtime to less than 100 hours a month in “busy” periods (and 45 hours at other times). The cap may be enshrined in legislation due later this year.

Obstacles to a shorter workweek remain. An online survey suggested that fewer than 4% of Tokyo workers left work early on the first “Premium Friday” at the end of February. Legal overtime limits will also be hard to enforce. Matsuri Takahashi, a 24-year-old employee at Dentsu, an advertising company, leapt from the third floor of her dorm on Christmas Day 2015. She had put in more than 100 hours of overtime in a month, but her managers had encouraged her to fake her timesheets.

Any new legislation might, however, send a signal that the old ways will no longer work, says Toko Shirakawa, a journalist who sat on a council appointed by the government to propose workplace reforms. Some parcel-delivery companies have reached the same conclusion. Yamato Transport, which runs a door-to-door service, said last month that it is slashing overtime and raising basic charges for the first time in 27 years. It is also setting up thousands of lockers at places like train stations where deliverymen can leave parcels if no one is at home. That should spare employees the hassle of a repeat visit, and save their packages from a good kicking.