Wage hike figures for May are giving out conflicting signals. Did the big (5%) hikes from the spring shunto negotiations spread to the rest of the labor force? Or, as in 2023, did they fail to do so very much? The shunto covers only 16% of the labor force, mostly at big companies that pay higher wages. As with the story of the blind men and the elephant, what you perceive depends on which figures you use.

            There is no such problem regarding real wages, i.e., nominal wages adjusted for inflation, which fell 1.4% in May, for the 26th consecutive month (see chart at the top).

            Bloomberg headlined its article Base Pay Jumps Most Since 1993 in Positive Signal for BOJ and focused on the 2.5% hike from last May in "base pay," i.e., pay for scheduled hours, not counting overtime, bonuses, etc. 2.5% is getting quite close to the Bank of Japan's (BOJ) goal of sustained 3% hikes in nominal wages. There's a problem with this base pay measure, however. It is not adjusted for the ups and downs in the number of scheduled hours. In May, for the first time in several months, hours rose, and by a substantial 1.3% from the year before. If we "look under the hood" at the hike in pay per hour, we get a very different picture. For total pay, including overtime and bonuses, wages rose only 0.7% per hour.

For details and for what this means for BOJ interest rate policy and economic growth, see https://richardkatz.substack.com/p/may-data-mixed-are-shunto-wage-hikes

Richard Katz