My observation and thesis today might sound daring but it is rather simple: Japan is witnessing the toughest labor shortage for decades. And it is exactly this shortage, which will get its economy moving and stronger again.

Facts first:

For the last 30 years, Japan’s inflation rate has hovered around 0 percent (yes, zero).
While I personally love paying the same yen amount for my beer that I paid as a student in the late eighties, this has been bad for the overall economy.

Real economic growth over the last 3 decades has been higher than that but still meager. There are various factors for this. But all observers agree that a healthy inflation rate (and expectation) is one of the elements required to lift growth significantly.

Real wage growth has been very limited too. This has benefited single Japanese companies but not the Japanese economy and its people.

40 percent of Japanese nowadays work as part-timers and freeters in low-paid labor agreements that neither pay well nor offer further on-the-job education and career development.

But here it comes, the promise of real and sustainable wage growth. Abe has been talking about it for years now, he has begged large conglomerates to open their wallets for their employees – with limited success so fr. First raises in base salaries and bonuses took place over the last three years – but all at a terrible snail speed.

Forward to 2017, enters a real shortage of workers leading to actual massive changes.

Take Credit Saison. The credit card issuer will turn 2,,200 part-timers and other irregular workers into permanent employees next month.  All of its 4,100 workers will be permanent workers, regardless of how long they have been with the company, and will qualify for bonuses and the same benefits, such as vacation days and defined-contribution retirement plans.

The change will cost millions of dollars per year. But Credit Saison feels the need to retain their workers by offering better working conditions, even if it means paying them more.

Many businesses in Japan have upgraded the status of irregular workers – making everyone permanent is yet a rare step. But I have heard from many company presidents that they consider the same. It is no longer only the construction, logistics and restaurant industries, companies in most industries feel the pinch of too few available workers – qualified or not qualified.

Do not expect a sea change within 12 months. But you can bet that wages will eventually rise substantially. And this should be the first step out of the vicious circle of little wage growth, little inflation, little economic growth.

Jochen Legewie

Jochen Legewie

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