It was one month ago when we showed how [17], thanks to a lot of statistical sleight of hand, Japan had completely "revised" one year of increasing nominal base wages to declining or flat at best, confirming that all the much-touted wage "improvements" heading into the Japanese election of late 2014 in which Abe was reelected by a wide margin had been purposefully fabricated to give the impression that Abenomics is working, when in reality it was... well, see the pre- and post-revision data for yourselves:
[18]
If that had been the full extent of Japan's labor data fabrication we would speak no more of it, however the rabbit hole goes much, much deeper.
As a reminder, in Japan where the Nikkei has been soaring ever since the Bank of Japan decided to crush the Japanese Yen the one missing component from the promised Abenomics recovery has been wage growth, because without rising wages there can be no sustained benign inflation of the kind that the Keynesian brains behind Abenomics require to proclaim success.
This is how Goldman summarized what the virtuous feedback loop of rising wages should look like:
The BOJ’s ultimate goal is to realize the following positive cycle: Increase in actual prices -> rise in inflation expectations -> wage hikes -> boost to consumer spending / improvement in corporate earnings -> inflation -> rise in inflation expectations -> sustained wage hikes in the corporate sector. The underlying notion is that the pursuit of both high wage growth and high inflation expectation ensures stable inflation
That's the theory. The reality is far different because some two years after the start of Abenomics and the launch of Japan's QE, nominal wages are about where they were when Abenomics started, while indexed real wages have never been lower!
[19]
The paradox of Japan's lack of wage increases become particularly glaring when one considers that just like in the US, Japan recently reported a post-Lehman low unemployment rate of just 3.4%, in fact in Japan this was the lowest print since 1997. As the following employment indicators suggest, the Japanese labor market should be tighter than at any point in the 21st century, suggesting wage inflation should be rampant:
[20]
In the US the most recent unemployment rate was 5.4%, about as close to full employment as possible, and yet neither in Japan nor in the US has there been any wage improvement.
So how does one explain the paradox of a labor market that at least quantitatively has no further slack and yet where real wage growth has never been lower. Simple, and incidentally the explanation is one which Zero Hedge provided all the way back in 2010 when we charted "America's Transformation To A Part-Time Worker Society [21]."
It turns out that in Japan the answer is the same, only when one peeks beyond the merely quantitative and into the qualitative, it is worse. Much, much worse. As the following chart shows, virtually all the job growth in Japan since the great financial crisis has been thanks to part-time jobs!
[22]
This is Goldman's explanation which comes 5 years after our own:
As Exhibit 4 demonstrates, growth in the number of full-time permanent workers has more or less leveled off since the 2008 Global Financial Crisis, whereas the number of part-time workers in Japan has risen consistently over the last decade. Having accounted for 20.3% of Japan’s workforce in 2005, part-timers made up 25.1% of the labor market in 2014 (this substantial increase contrasts with far weaker growth in the ratio of nonpermanent full-time workers such as contingent and temporary staff, to 11.5% from 10.3%).
Japan’s part-time worker ratio now exceeds that of the US and the EU average; nevertheless, the Japanese labor market had been characterized by the high fraction of permanent workers in the past. What this essentially means is that growth in part-time workers has persistently depressed Japan’s average wage over the last decade. Exhibit 5 ... illustrates that the decline in average wages due to the shift to part-time labor began in the mid-1990s at the latest and continues to this day. We calculate that growth in part-time labor depresses the average wage by 0.5pp a year.
[23]
As a reminder, in the most recent BLS report, part-time jobs in the US once again surged [24], and have been the only source of incremental job growth since the start of the last recession in December 2007. As we showed, full-time jobs have yet to recover their prior cycle peak, which is the glarinly obvious answer for anyone still surprised why there is no wage gains in the US.
[25]
But if you thought the US was bad, in Japan things are - as one would expect of any economy approaching a state of terminal, demographically-facilitated collapse - far, far worse. Back to Goldman:
If companies have been hiring more part-timer workers simply to cut labor costs in line with a slowing economy, then the ratio of part-time workers should in theory fall as the economy recovers, lifting overall wages. In the US, the part-time worker ratio correlates closely with the macro economy (Exhibit 6). In Japan, however, the ratio of part-time workers has risen more or less consistently, suggesting that besides the economic cycle, structural factors are also playing a part.
At this point Goldman's economists do the usual thing and spend days of research investigating an answer that is so simple a five year old can figure it out after a few seconds of contemplation. And sure enough, the primary reason why companies prefer to hire part-time workers over full-timers is, drumroll, they are cheaper.
[26]
Finally, recall another persistent theme which sadly only Zero Hedge appears to be focusing on [27]: namely that all the hiring since the Financial Crisis has been for workers 55 and older.
[28]
The apologists consistently, and erroneously, explain this with "demographics", even though the participation rate of young workers has collapsed, suggesting it is the younger who simply no longer have a motive or a desire to remain in the work force, while that of old workers has remained largely flat since 2007 as more and more old Americans realize they will never be able to retire under ZIRP and as a result will have to work until their death.
[29]
Well, now we have confirmation that the surge in hiring of older, part-time workers has little to do with demographic transitions and everything to do with the simplest possible explanation: they are cheap!
Enter the case of Japan, where Goldman finally has a long, long overdue epiphany:
What drew our attention in Exhibit 8 are two responses that rose between the 2006 and 2011 surveys: The re-employment of retirees, and the re-employment of full-time staff who left for family reasons, most likely getting married or having children (the number of businesses that cited labor cost savings as a reason for hiring part-timers has declined considerably).
This suggests to us a change in the structure of part-time employment in recent years. Employers generally recruited part-time staff in the past as a means of reining in labor costs. However, Exhibit 8 reveals that more recently, part-time hiring is increasingly being used as a means of employing senior citizens or re-employing housewives. In Exhibit 9, we see that the increase in part-time hiring over the last decade has been largely driven by senior citizens and housewives entering the labor market.
[30]
Here is Goldman's admission that Zero Hedge was correct about what lay in store for America some 5 years ago, by looking at the labor dynamics in Japan:
We attribute this trend to three factors. First is a shift to part-time labor among the elderly generation as Japan’s population ages. Baby boomers – the generation of Japanese born in 1947-1949 – began to turn 60 in 2007 and started retiring around the same period, raising concerns about the so-called “2007 problem” namely a labor shortage in the corporate sector. In the event, major turmoil in the labor market was averted as companies extended employment beyond 60. Five years later, however, the “2012 problem” arose as the same baby boomers turned 65.
Having raised the pensionable age, Japan passed an amended Act on Stabilization of Employment of Elderly Persons in April 2013 that requires companies to offer employment through to 65 for those seeking to work beyond 60. When extending the period of employment, however, companies are under no obligation to offer the same terms that existed before. With the agreement of the employee and employer, companies can switch to a non-permanent arrangement in the form of short-time, contract, or part-time employment (most companies re-employ retirees on non-permanent contracts to reduce their wage bill).
Second – and also linked to the aging population – is that both elderly men and women are remaining in the labor market to supplement a decline in income due to cuts in pension payments. Japan began raising the pensionable age in the early 2000s, meaning that the current generation of people in their 60s faces fewer pension payments. Pension cuts have gained further traction since April 20134, and the labor participation rate among people in their 60s has accordingly risen at a faster rate over the past two years. For senior citizens aged 65-69, the labor participation rate has reached 42% (FY2014 average, versus a FY2000 average of 37%). How this generation is employed has also changed notably over the past 15 years: whereas in 2000 around 50% of people aged 65-69 were self-employed/family workers, by 2014 the ratio of employees had reached almost 75%.
Third, female labor participation rates are rising in all age groups except women under 25, as Womenomics manifests itself. Exhibit 9 shows a marked increase in part-time female workers in their 40s and 60s. A key factor is the impact of a rise in the labor participation rate within this more populous generation (of baby boomers and junior baby boomers).
To summarize the Japanese economic recovery under Abenomics (and before): all the labor growth has been thanks to senior citizens and housewives. And this comprises the bulk of the surge in part-time jobs, which as shown above, is the only component of Japan's employed workers that has grown. As a result, Japan's real wages are the lowest in history.
And now to summarize the US labor picture as well: more part-time workers, and more old workers.
In other words, Japanification is truly coming to the US, and unfortunately in the one place where it hurts the most: the labor market. And not just any labor market, but one which is touted by the press as improving which while perhaps true quantitatively, is absolutely false qualitatively: in fact, if one extends the Japanese comparison to its logical conclusion, real wages in the US are due to tumble in the coming months and years as the Japanese economic and demographic reality is unrolled in the US.
Precisely as we warned in 2010 [21].
But the biggest problem is not that the underlying economics is devastating when one looks behind the populist headlines. It is that both in Japan and in the US, the mainstream economists - who we can only hope are not all idiots, and can figure out what even Goldman now sees - are engaging in open fraud when spinning disastrous labor trends into what the mainstream press touts is a "labor recovery."
But at least we know the reason: recall that for Janet Yellen the only "data-dependent" economic indicator which holds back a rate hike is the lack of wage growth. And as long as there are no rate hikes, the Fed and other central banks will continue flooding the global markets with trillions in liquidity while keeping rates at 0% or negative, pushing global stock markets and asset prices to ever recorder highs.
Who benefits from this fraud? Why the 1% of course, because while the hope for 99% of the population - and the lie - remains that wage growth is just around the corner - a story repeated in 2010, 2011, 2012, 2013, 2014 and 2015... and which will be repeated in the coming years without a doubt - who benefits from this fraudulent status quo here and now? Those who could care less if the average wages for everyone continue crashing, does care very much that the S&P 500 hits another record high tomorrow and the day after.
And as long as the fraud behind wage growth, and the lack thereof, remains, they will get precisely what they want, with the blessings of every central bank in the world.
