Tuesday, April 21, 2009

Japan Spreads Pain of Recession as Wage Cuts Stem Job Losses

Some very interesting data points out of Japan; I did not realize the stagnation in wages over such a long period of time as an offset to relative job security. Although not everyone is spared and at some point the constant loss of purchasing power pushes many into poverty. [Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime]

Thankfully we don't face such a fate because we are forcing hard decisions onto consumers, forcing banks to come clean and... wait... [Feb 9: FT.com's Martin Wolf - "We'll Be Lucky if Downturn is Only as Bad as Japan's] Oh. Never mind.

Well, one place we differ is the labor force - not only are we cutting jobs but many are seeing wage cuts as well. Got to goose those corporate profits; can't worry about the labor force and after all, the green shoot consumer recovery is right around the corner. Jobs are highly overrated.

Via Bloomberg

  • Toshio Taniguchi is one of about 10,000 workers at Tokyo-based Renesas Technology Corp. who accepted a pay cut last month to keep the company alive. “It was tough to swallow,” said Taniguchi, a 62 year-old worker at the company, Japan’s biggest unlisted chipmaker. “But most people are just thankful they still have jobs.”
  • Japan, the country with the most flexible wage system in the developed world, is slashing pay rather than sacking people, easing the pain of what may be the country’s worst recession since World War II. A longstanding tradition of lifetime employment gives companies such as Toyota Motor Corp. and Renesas little choice, even if millions of workers like Taniguchi have to make do with less.
  • “Many people are spared a tragic outcome, even if there’s a downside for everybody,” said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. “It helps remove the fear factor.”
Now what is so interesting with Japan is the move to "Western style" (at least how it is practiced in the US, if not much of Europe) temporary work. They don't enjoy the same positives as the full time workers get. We outlined this in October [Oct 28, 2008: Pooring of Japan Too?]

The 29-year-old laborer is one of a burgeoning class in Japan -- the working poor. The number of Japanese earning less than $19,610 a year surged 40 percent from 2002 to 2006, the latest data available, the government says. They now number more than 10 million.

The growth of the working poor -- not seen in such numbers since Japan surged to wealth in the 1980s -- has been a shock to a country that once prided itself on being a bastion of economic equality.

"It is unprecedented to see such a widening income gap in Japan," said Yoshio Sasajima, economist at Meiji Gakuin University in Tokyo. "Our society is definitely becoming a class society."

In the 2000s, that was followed by a round of free market reforms that widened the disparity between haves and have-nots.

A key to the growth of the working poor has been the explosion in temporary employment agencies, which allow corporations to take on labor without having to pay benefits -- and then unload workers at will.

The spike in the number of the working poor is already taking a toll on Japanese society. More people are putting off marriage because of tight finances, exacerbating a declining fertility rate. Part-time workers unable to afford rent sleep in 24-hour Internet cafes to escape the streets. Some have stopped going to the doctor because they can't afford it.

This should all sound vaguely familiar to American readers... we are seeing many of the same issues, but we champion them under "we have the most flexible and profitable companies in the world!" (see our stock market index the past decade for proof!). I continue to believe there are historic, structural changes happening across the globe as workers in developed 1st world countries move downward to a more equitable "global wage" and workers in "cheap locales" will move upward. Opponents of this view will be of the view that a lifting tide lifts all boat (some day). I guess we won't know for 20+ years if indeed living standards of ALL people are raised globally, but even if true that far off dream doesn't help the multitudes of displaced workers who live in the here and now in the mature countries. So off to temporary or lower paying jobs they go. With the same costs of life of course.

Now in both Japan and the U.S - to counteract this (we've discussed the stagnating median wage in the 2000s ad nauseum) the "solution" has been "cheap money" to keep putting off the reality check of what is happening. That worked; until the bubble burst. The new solution? Same old same old. Cheap and easy money. Until the music stops again. [Do the Bottom 80% of Americans Stand a Chance?] Instead of drawing lessons from others we continue down the path of "We're not Japan" and "We're #1" and "it can never happen here" and (insert your own chest thumping reason we are a superior being)

Back to the current Bloomberg article
  • Not all Japan’s workers are equally protected. In addition to paring wages for full-timers, companies are cutting temporary staff, a group that makes up more than a third of the country’s 56 million-person workforce. Before the economic bubble burst in the early 1990s, only 20 percent of workers were temporary.
  • Companies are keeping people even as the volume of work falls. Production lines at the Renesas wafer-processing plants in Gunma and Shikoku are running at less than half-capacity. “People spend a lot of time cleaning these days,” said Taniguchi, laughing at the lengths people go to in order to stay busy. “We’re cleaning the undersides of desks. We’re cleaning behind the books on shelves. These are huge factories, so there’s no end to the stuff you can find to clean.”
Now this was incredibly fascinating and new to me

  • What makes Japan different is the flexibility of its wage system, according to Randall Jones, head of the Japan desk at the Organization for Economic Cooperation and Development in Paris. With the exception of Japan, average nominal pay in 25 advanced economies has risen virtually every year for almost two decades -- even during recessions, OECD data show. By contrast, Japanese salaries have fallen in seven of the last 10 years.
  • “Rather than cut workers, they cut wages. In a sense, it’s healthy,” Jones said. “Keeping people on the job is better for the economy than having lots of people go onto unemployment or welfare. There’s a lower burden on society.
Before we hear the chest thumping of our superior system, please be aware where the costs of our burdens of our society are going. They are the same costs, just put off in our Kick the Can ledger. So instead of being somewhere obvious it is just added to the growing national debt roll ... for another generation to face. And in the meantime we can tout the superiority of this system which has now created wealth dispersion and income inequality not seen since the 1920s. Time to bust out the lapel pins!

  • Full-time workers typically get about a quarter of their yearly wages in two lump payments set at the start of each business year. The so-called bonuses give companies room to adjust labor costs when profits fall.
  • For workers further down in the pyramid of Japan’s suppliers, pay cuts are pushing some into poverty. “It’s hard to make ends meet,” said Takashi Takai, a 46- year-old factory worker at a Kyoto-based company that processes metal used in auto parts. Takai said his pay has been cut by a third to 190,000 yen a month. “I should probably start looking for a second job, but there’s nothing out there.” (this is exactly the median wage equalization that is happening slowly but surely.... drip... drip... drip)

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