In 2024, real wages in Japan fell for the third year in a row, dropping by 0.2% despite the fastest wage growth in over three decades. While nominal wages increased by 2.9%, they could not keep up with inflation, which rose by 3.2%. This situation has affected workers’ purchasing power, even as the government pushes for stronger wage increases.
Real Wages in Japan Continue to Decline
Japan has been facing a tough economic situation where wages are rising, but prices of goods and services are increasing even faster. In 2024, real wages, which show the actual purchasing power of workers after adjusting for inflation, fell by 0.2% compared to the previous year. This marks the third year in a row that real wages have declined, according to government data released on Wednesday.
The problem is that although wages have been increasing, inflation has been rising at a slightly higher rate, making it difficult for workers to afford everyday necessities. The government has been trying to push for wage increases that exceed inflation, but this goal has not yet been fully achieved.
Wage Growth vs. Inflation
The Ministry of Health, Labor, and Welfare reported that nominal wages, which include base salaries and overtime pay, grew by 2.9% in 2024. This is a significant rise, bringing the average total monthly earnings per worker to 348,182 yen. However, inflation increased by 3.2% during the same period, meaning that in reality, workers were able to buy slightly less with their earnings.
In comparison, inflation in 2023 was even higher at 3.8%. Although inflation has slowed down slightly, it still remains high enough to outpace wage growth. This means that even though workers are earning more on paper, their actual standard of living has not improved as much as expected.
Monthly Trends in Real Wages
When looking at real wages month by month, increases were only seen in June, July, November, and December. These months had higher wages mainly because companies provided bonuses. In most other months, workers’ earnings did not rise enough to keep up with inflation.
If we exclude bonuses and other special payments, regular wages increased by only 2.1% in 2024. On the other hand, special cash earnings, which include bonuses, grew by 6.9%. This suggests that while companies are giving larger bonuses, regular salary increases are still not strong enough to match rising prices.
For workplaces with 30 or more employees, real wages showed a slight improvement, increasing by 0.1% in 2024. This was the first time in two years that real wages for such companies saw any growth, though the increase was very small.
December’s Wage Increase and the Impact of Bonuses
In December 2024, real wages increased by 0.6% compared to the previous year. This was mainly due to winter bonuses, which boosted workers’ total earnings. Nominal wages in December rose by 4.8%, reaching 619,580 yen. Special cash earnings, which include these bonuses, grew by 6.8% to 333,918 yen.
While this increase in December appears positive, it does not change the fact that over the entire year, real wages still declined. It also shows that many workers rely on bonuses for financial relief rather than benefiting from steady wage growth throughout the year.
Government Efforts to Improve Wages
The Japanese government has been encouraging businesses to raise wages to help workers cope with rising prices. The idea is that if companies pay higher salaries, people will have more money to spend, which can help strengthen the economy. However, companies are still cautious about increasing wages significantly because they are concerned about future economic uncertainty.
Many businesses, especially smaller ones, struggle to afford higher wages because their own costs, such as energy and raw materials, have also gone up. Large companies have been able to offer better pay raises, but for workers in smaller firms, wage growth remains slow.
What This Means for Workers and the Economy
For many Japanese workers, declining real wages mean they have to be more careful with their spending. When salaries do not keep up with inflation, people may cut back on non-essential expenses, which can affect businesses and the overall economy.
If this trend continues, Japan could face slower economic growth because when people spend less, businesses make less money, which could lead to lower investments and job opportunities.
