Japan asks if flipping burgers is better than working at a megabank

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In the 1840s, tens of thousands of immigrants descended on California in search of gold to strike it rich. Could young Japanese looking to flip burgers be next?

It’s a jocular thought, but Japanese media are still thrilled to hear that, thanks to new legislation, workers at fast food joints in the Golden State could soon be earning $22 an hour. At the current level of the yen, this is equivalent to almost 3,300 yen, or almost four times the average minimum wage in Japan.

At 40 hours a week, that salary would be double what fresh graduates from Japan’s top universities could expect to receive at the country’s prestigious megabanks. One commentator said the discrepancy made working in Japan “look stupid”.

The historic weakness of the yen did not cause the problem, it simply exaggerated the spread. Along with rising inflation, the currency has shone a harsh light on an ugly truth: by international standards, the Japanese masses famous for their hard work are grossly underpaid.

It is a legacy of decades of economic stagnation and conservative choices by management and workers. Average salaries in Japan have sadly stagnated for three decades and are well below the OECD average. Businesses have become obsessed with cutting costs and they’ve done it very well too, with cash reserves and profit margins rising.

But the ripple effect of the battered yen on inflation now means workers’ real incomes are squeezed as rarely before. While Apple Inc. touted unchanged prices for this year’s iPhone lineup, Japanese consumers are paying more than 20% more for an iPhone 14 compared to last year’s model. Predictably, sales in one of Apple’s key regions are among the worst in years.

The situation raises concerns about the risk of brain drain as young people seek opportunities abroad. Conversely, the healthcare and construction workers that Japan is trying to attract from overseas might find the country a less attractive destination when calculating the value of their wages back home.

Even in the current inflationary era, companies still choose to absorb most of the cost increases of largely imported inputs, rather than pass them on to the consumer. For every 100 yen increase in spending, companies on average transfer only 36.6 yen to the customer, according to a survey of more than 1,600 companies by Teikoku Databank. Contrary to the stereotype of the comfortable Japanese cartel, competition in many sectors is fierce and with the pandemic recovery incomplete, many fear that higher prices will send spenders to their rivals.

Of course, it’s good news for consumers (especially the country’s retirees) that inflation in Japan remains relatively low, although it is rising, with prices in Tokyo minus fresh food rising 3.4%. in October, the most since 1989. For shareholders, the increased profit margins that Japanese companies manage to generate are welcome, especially if you pay in dollars.

But the remaining 63.4 yen of that 100 yen cost increase has to come from somewhere. In practice, this means cost reductions and lower profit margins, which translates into less money for workers. It also contributes to the insidious practice of charging lower prices to sub-contractors, which puts strong downward pressure on companies further down the value chain.

The Bank of Japan signaled confusion on Friday, citing “great uncertainties” about how companies would set wages in an inflationary environment. It’s not hard to see where they’re coming from – these circumstances haven’t existed in Japan for three decades, before businesses were traumatized when the economic bubble burst. It is difficult to predict their reaction.

But it’s hard to get too excited to hear that Rengo, Japan’s biggest union, plans to ask for a 5% raise in pay talks in the spring of next year. Even if management agrees to this request, Rengo has only 7 million members, a fraction of Japan’s working population. Pay talks have largely failed to move the needle for three decades: it’s more fundamental structural issues that need to be addressed.

These include the still dismal ability of workers to move easily in the labor market; the disparity between full-time workers and part-time contract workers; low starting salaries, even for highly skilled workers; and the many other remnants of an employment system that has long since lost its usefulness.

The problem, of course, is that any attempt to fix the issues is likely to be deeply unpopular. One of the main reasons why workers are paid so little is that it is incredibly difficult to fire them. Without a booming population, there will be no return to the high-growth boom of the 1970s and 1980s, when the country boasted that nearly everyone was middle class. Labor reform would inevitably require trading job security for job liquidity. Significant measures to reward those with more skills or risk appetite will inevitably increase economic inequality, which Japan has largely avoided despite the slow years (one of the main reasons why its crime is so low and its streets so clean.)

Prime Minister Fumio Kishida has spoken of a big game on securing pay rises, but is he the man to tackle such a nasty issue when his stock is at an all-time low? Inflation and a weak yen add a sense of urgency but also open a window of opportunity as businesses and consumers get used to seeing prices rise and begin to consider their options for dealing with it. Kishida talks about using the soft yen to Japan’s advantage; a bold program to encourage investment and jobs in Japan, from foreign and domestic companies, is long overdue.

Despite the yen, Japanese youth are unlikely to give up the country’s many perks to ask Angelenos if they want fries with that. But another 30 years of stagnant wages? Nobody’s gonna like that.

More from Bloomberg Opinion:

• Workers in Japan should ask for a raise: Gearoid Reidy

• Inflation overshoot in Japan. Not much: Moss and Reidy

• Wall Street is in denial of the “real” economy: Gary Shilling

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.

More stories like this are available at bloomberg.com/opinion

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