By Noah Smith
First, the good news: Japan has finally begun to wrestle with its endemic problem of long, unproductive working hours.
Japanese companies are famous for forcing their employees to work unpaid overtime long into the night. Workers are afraid that if they leave early, they’ll be passed over for promotions and be ostracized by their colleagues. Companies are reluctant to let employees take work home with them, often citing data security concerns. As a result, in many Japanese families it has long been commonplace for men not to see their families on weeknights—and now that Japanese women have entered the workforce in large numbers, the strain of long hours on family life is even more severe.
Worse, those long hours are killing Japanese productivity—research suggests that at about 60 hours a week, working more doesn’t result in getting more done. Those extra hours tire people out in body and mind, making every other hour of the day less productive. Japan has major productivity problems—its output per hour worked is only about 60 percent of US levels—so eliminating overwork is an important priority.
Fortunately, the government and large corporations are addressing the issue, using a mix of policy and new workplace norms. Some companies are letting employees do more work from home, while others are turning off their office lights at a certain time. Government agencies are doing the same, and leaders are taking some symbolic steps to spread the idea of work-life balance. Meanwhile, companies that overwork, underpay and otherwise exploit their workers are now often vilified in popular culture. The long-term impact of these efforts can’t be known yet, especially since unpaid overtime is by its nature hard to measure. But the problem is certainly being recognized and addressed, and that’s a very good thing for Japan.
But now for the bad news about Japan’s labor market. Excess working hours may be falling, but wages aren’t yet rising. From looking at macro data, Japan ought to be experiencing rising pay, as the US is. Japan’s unemployment rate has fallen to a two-decade low of 2.8 percent:
And the labor force participation rate has increased, resulting in a record high prime-age employment-to-population ratio. The country’s demand shortage has ended, even as record numbers of women have entered the labor force.
Given such a tight labor market, it’s a mystery why household incomes for workers aren’t going up:
Interestingly, some people from the Bank of Japan have a theory that reduction of overwork is actually causing wage stagnation. The idea is that if unobserved work hours are being cut, employees might be producing less overall, even as they produce more per hour. That could cause wages to stagnate. It could also make companies hire more workers in order to maintain the same level of production, which would be consistent with rising employment rates.
But this explanation seems unlikely to explain stagnant wages. Japanese employees are so overworked that cutting excess hours should probably leave them producing roughly the same amount each month. That means that falling unemployment should still be exerting upward pressure on wages.
It could be that as Japan employs the very last few available workers in the country, aggregate productivity is being held back, because the last workers to get hired are also likely to be the least productive. They tend to have less experience, and perhaps other characteristics that prevented them from getting jobs before. Since these workers couldn’t demand wages as high as those who had been working for a long time, this would act to hold down pay.
It could also be that Japan is suffering from a decline in labor’s share of national income. The US has been experiencing this since at least the turn of the century, and there are many theoriesabout the cause —globalization, automation, increasing market concentration and a rise in land values. So far, economists haven’t solved the mystery. But all four of these factors may well be operating in Japan. So whatever has been holding down labor’s slice of the economic pie might also be causing Japanese wages to flatline.
So while wage stagnation is a concern, it’s probably not being caused by the reduction in excessive working hours. Japan shouldn’t deviate from its course—raising labor productivity and giving workers back their lives should remain the focus of policy.