National / Politics | ANALYSIS

Abenomics under heavy fire after dodgy data hid apparent drop in wages across Japan in 2018

by Reiji Yoshida

Staff Writer

At Tuesday’s Lower House Budget Committee session, opposition lawmaker Kazunori Yamanoi looked furious.

It may have been posturing, but Yamanoi, of the Democratic Party for the People, perhaps had good reason to be angry: the government is refusing to publicize the average real wage of workers in the nation last year, one of the most fundamental economic indicators used to gauge the economic conditions of millions of employees across Japan.

“We don’t know if the real wage, which is the most important (economic indicator), was positive or negative (last year),” said Yamanoi.

“There are no other developed countries like that, are there?” he continued.

“What on earth is going on here?”

This week, debates in the current Diet session heated up. At stake is the credibility of Prime Minister Shinzo Abe’s critical signature policy: Abenomics.

Last month the labor ministry admitted it had secretly revised the statistical methods used for the monthly wage survey — one of the most fundamental statistics used to gauge the nation’s economic status — from January last year. The adjustment led to sudden spikes in nominal wages throughout 2018.

The revelations have prompted speculation that Abe’s government may have intentionally manipulated statistical formulas to boost nominal wage data and thereby trumpet the success of — or hide a failure of — Abenomics, according to opposition lawmakers. Abe has strongly denied the allegation.

Abenomics is centered on the ultraloose monetary policy of the Bank of Japan, which has pledged to spark sustainable inflation of 2 percent a year and thereby reinvigorate the reportedly sluggish Japanese economy.

Raising wage levels is considered a key prerequisite to spark the sustainable, healthy inflation envisioned in the Abenomics theory.

But the credibility of the most fundamental wage survey has now been heavily damaged by the undisclosed revision of the statistical method used, economists have said.

“These monthly wage statistics are the most fundamental surveys to show wage levels on the macroeconomic base,” said Hisashi Yamada, senior economist at the Japan Research Institute in Tokyo.

“Now the credibility of this survey is being questioned. The problem is very grave,” Yamada said.

In response to Yamanoi’s questions, labor minister Takumi Nemoto, somewhat sour-faced, pointed out that the government has already publicized real wage data for last year, or the nominal wage value adjusted for inflation or deflation. It showed a 0.05 percent fall from the previous year on average.

But using another set of nominal wage data collected and adjusted based on a different statistical method, Reuters has estimated the average real wage to have declined 0.4 percent on average from January through November last year compared with the same period previous year, which is a drop much larger than that of Nemoto’s data. Opposition lawmakers also separately estimated the average real wage last year as having fallen 0.53 percent.

Economists say that for the comparison of real wages in 2017 and 2018, data used by Reuters is more appropriate because they are based on the same sample businesses for both years. Half of Nemoto’s samples, meanwhile, were replaced with new ones.

The wage data Reuters used is called the sankochi (reference values), and had been published by the labor ministry for use as reference material. The labor ministry has refused to estimate real wages based on these reference values.

“Yes, sankochi is better when you compare 2017 and 2018 because the samples are in common,” said Yutaro Suzuki, an economist at Daiwa Institute of Research Group.

However, both Yamada and Suzuki said it would probably be going too far to suggest that Abenomics has been a total failure just because the average real wage sank in 2018.

Since the launch of Abenomics in spring 2013, the nominal wage continued to slowly rise over several years, Yamada pointed out.

Real wage growth in 2018 was apparently pushed into the red because of a rise in the prices of imported oil products and other items, Yamada said.

Suzuki, too, said he will not revise his overall view of the effects of Abenomics because wages have kept slowly rising since Abe launched Abenomics in 2013.

But it is still not known why the labor ministry made the statistical errors and didn’t announce the revision to the public, he said.

He declined to comment when asked if he believes bureaucrats may have intentionally manipulated the figures.

“An investigation into the cause is needed. Otherwise you can’t say this statistical problem is resolved,” he said.

So what exactly was the undisclosed change made by the labor ministry when it revised the statistical data?

When surveying nominal wages across the nation each month, the Health, Labor and Welfare Ministry is obliged to check wages and salaries at all businesses with 500 employees or more.

But when questioned by economists the ministry admitted it had only surveyed a third of such firms in Tokyo from 2004 through 2017, in a possible violation of the Statistics Act.

The data collection shortfall resulted in the average wage appearing lower than it actually was. In January 2018, the ministry started correcting the sampling data so that it would be closer to the figures that would have been seen if the survey been conducted in full, but this correction was made without any public announcement, according to labor ministry officials.

Meanwhile, wage data in the 2018 survey was corrected with a set of benchmark data from a separate 2014 census survey, to reflect the actual component ratio of workers by industry.

This also pushed up the nominal wage average in the 2018 survey when compared with the 2017 wage survey because the 2017 data was corrected with different benchmark data from a 2009 census survey, labor ministry officials said.

Staff writer Sakura Murakami contributed to this report.

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