As Japan Sees Base Pay Rise, Part-time Workers Get Substantial Gains

Part-time Workers

Japanese workers experienced a notable increase in their average base pay, which climbed 2.5% in May—the fastest pace in 31 years—as companies implemented substantial pay hikes from annual wage negotiations. Part-time workers, in particular, saw significant gains.

Despite this increase, inflation-adjusted real wages fell for the 26th consecutive month, a record decline driven by a weakening yen and rising commodity prices that have increased import costs. This situation complicates the Bank of Japan’s (BOJ) efforts to normalize monetary policy.

Wage trends are crucial in determining how soon the central bank could raise interest rates. BOJ Governor Kazuo Ueda has emphasized that broad-based pay increases must accompany rising prices for inflation to sustainably reach the bank’s 2% target.

The 2.5% year-on-year increase in May surpassed the revised 1.6% rise in April, marking the fastest growth since January 1993, around the time of Japan’s asset bubble burst. “The data highlights Japan’s increasing wage momentum. While real wages continue to fall, they will likely start rising in July,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

Nominal wages, or the average total cash earnings per worker, grew 1.9% to 297,151 yen ($1,850), accelerating from the previous month’s 1.6% gain and achieving the highest year-on-year increase in 11 months. However, when adjusted for inflation, wages fell 1.4% in May following a revised 1.2% decline in April.

Signs of Japan’s intensifying labor shortage leading to broader-based wage rises were evident. Wage hikes at firms with 30 or more employees outpaced inflation for the first time in 26 months. However, when very small firms with five or more workers were included, pay hikes still lagged inflation.

Hourly pay for part-time workers rose 4.0% in May compared to a year earlier, outpacing the 2.7% gain for full-time staff. For instance, the Hotel Mercure in Sapporo increased its hourly pay for part-time workers by an average of 15% this year, compared to a 4% increase for its full-time workers.

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