Value investors tend not to care much about monthly wages and labor reports published by the government. That’s not to say compensation practices and levels don’t matter at a particular company one is researching. In Japan it’s just they matter for different reasons. Here’s why wages seem like they are always reported to be falling in Japan:
Reason #3: Japan’s best (and thus best-paid) baseball players have been leaving for the U.S. to 4x – 5x their salaries. Sure, Japanese owners can overpay some of their foreign sluggers and pitchers, but at half the cost of a MLB-bound star and meantime pay the rest of their players around 1/10th the MLB average.
Reason #2: If Japanese workers aren’t spending like the bubble days it’s not like CEOs or other executives are either. Japanese CEO’s make around 30x the average employee based on some cursory research of mine a couple years ago. That, in turn, is 1/10th (I’m probably being generous to the Japan side) the compensation difference between U.S. CEO’s and their employees on average. Where’s all the money going?
Reason #1: Everyone knows that Japan’s population is declining. Wouldn’t it make sense then that in what was and in many respects remains a seniority-based system, the more new retirees — the very ones that command some of the highest salaries on average — the more pressure there is on wage growth (i.e. the lack thereof). It seems this was reported about with anticipation some ten years ago but its impact of recent years has been forgotten.
Conclusion: In all seriousness, the solution to a significant facet of Japan’s economic woes is fundamentally fairly simple. Younger employees need to be better compensated. Many companies have very robust, net-cash (not a few debt-free) balance sheets. It is not 1991 or 2001. Excesses from the bubble years that had necessitated asset writedowns and heavy debt repayment have turned into excessive capital surpluses.
Rather than companies remaining in a cost-cutting/saving mode, at least when it comes to human capital, they would be best advised to pay more. How many times have you heard an investor calling for an increase in employee compensation? What do you think will happen to marriage rates and family formation?
Three Unreported Reasons Behind Japan’s Declining Wages via Steven Towns