TOKYO: Japan’s unemployment rate is lower than it has been for 17 years, and there are more jobs than there are people looking for them.

Wages should be rising, right?

Wrong. Base pay was unchanged in the most recent monthly data and, if you account for rising consumer prices, incomes are actually falling in the world’s third-largest economy. That’s in part why consumers are “uneasy,” in the words of Finance Minister Taro Aso on Friday, even with an unemployment rate of 3.4 per cent that might unleash a wave of spending if it were the United States or Britain.

The key to the puzzle: employers are relying on part-time workers like never before, steering clear of full-time hires who are more costly. Here is a series of charts that show Japan’s shifting labour market.

Almost 38pc of the labour force in the last three months of 2014 comprised non-regular employees, the highest level in comparable data, with that ratio at or near record highs in the construction and manufacturing industries in December. The highest levels were in accommodation and restaurant businesses, where almost 73pc were non-permanent workers, and the wholesale and retail sectors, where only about half of staff were permanent.

“Companies are containing an increase in overall pay for base salaries by boosting the ratio of non-regular workers,” said Koya Miyamae, an economist at SMBC Nikko Securities Inc. “Companies remain cautious about raising their fixed costs and they won’t probably change this stance for a while.”

Stagnant pay is feeding through to households, which cut spending in each month last year after April’s sales tax increase.

“The reason people are spending less is because their wages are declining,” said Richard Katz, editor of the Oriental Economist, a monthly newsletter about Japan and US-Japan relations.

Base pay, which excludes bonuses and overtime, was unchanged in November from a year earlier, with wages adjusted for inflation dropping for a 17th month.

Flat incomes come even as the government is having success in boosting the number of working-age people who are employed or looking for a job.

The participation rate of people aged 15 to 64 years hit a record last year, in data going back to 1968. The female rate also hit a record, showing some success in efforts to replace Japan’s aging workers by encouraging more women into the workforce.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, February 1st, 2015

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