Japan’s Wages Drop as Companies Cut Costs Amid Mounting Losses

By Jason Clenfield

Feb. 3 (Bloomberg) -- Japan’s wages fell for a second month in December as manufacturers slashed production and overtime pay amid mounting losses.

Monthly wages, including overtime and bonuses, fell 1.4 percent from a year earlier, after dropping 0.7 percent in November, the Labor Ministry said in Tokyo today. Overtime compensation dropped 11.2 percent, the most since 1992.

A wave of firings and shift cuts by Japan’s biggest companies is heightening the risk the nation’s economic slump will deepen as consumers spend less. Hitachi Ltd. last week forecast a 700 billion yen ($7.8 billion) loss for this fiscal year and said it will eliminate 7,000 jobs; Toyota Motor Corp., facing its first loss in 71 years, will shut domestic factory lines for 14 extra days this quarter.

“We will now see the recession being driven by a domestic slump, not just falling global demand,” said Martin Schulz, a senior economist at Fujitsu Research Ltd. in Tokyo. He said the pace of recent job cuts makes the current recession more alarming for households than previous slumps, during which companies held on to workers.

Japanese manufacturers last week announced at least 30,000 job cuts. The unemployment rate jumped to 4.4 percent in December from 3.9 percent a month earlier, the biggest increase in 41 years.

NEC Corp., Japan’s largest maker of personal computers, said last week that it will fire 20,000 workers worldwide by March 2010. Sony Corp. is shedding 16,000 jobs. Both companies forecast losses for the year ending March.

Temporary Workers

The increased use of temporary workers, who make up more than a third of the workforce compared with 20 percent two decades ago, has cut labor costs for companies and given them more flexibility in firing workers. The wave of job losses that has resulted could give “an entirely new dimension” to what began as export-driven recession, according to Fujitsu’s Schulz.

“Unlike before, companies have started to lay off people immediately,” he said. “This is scary to households. They’re used to coping with flat or falling wages, but not unemployment.”

People are also working fewer hours as their employers shut factory lines to cope with a record plunge in export demand. Overtime hours at manufacturers dropped 30.6 percent in the month, the most since the government started the survey in 1990. The average year-end bonus, which typically amounts to about two months of salary, fell 1.7 percent.

Honda Motor Co., which slashed its earnings forecast by half, is reducing pay for some 4,800 managers by 5 percent through at least May.

Industrial production fell 9.6 percent in December, the most in more than 50 years and exports plummeted 35 percent, the most ever.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net