Japan In The News: Wage Cuts Supports Jobs
A recent Bloomberg article titled Japan Eases Recession Pain as Wage Cuts Support Jobs describes how Japan’s unemployment rate has remained relatively low amid the worse recession since World War II.
Japan’s unemployment rate is around 4.4% compared to 8.5% in the US. In addition to cutting temporary staff (which does not count under the jobless rate), companies are cutting wages (and working hours) for full-time employees. Also, Japan still has a tradition of lifetime employment which gives companies few choices.
According to the article, “what makes Japan different is the flexibility of its wage system … 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 (Organization for Economic Cooperation and Development) data show. By contrast, Japanese salaries have fallen in seven of the last 10 years”.
There are obviously some pros and cons with this wage system. In the US, it looks like some automotive companies and other factories are shutting down or have shut down their plants for an extended period to cut cost (wages).