Japanese Employees to Receive Salary Hike as Economy Recovers, but Consulting Industry Remains Cautious
By:
Hilmar Albers – Partner
Erwin Harbauer - Managing Partner
In parallel to the positive momentum witnessed in the country’s economic growth, forecasts indicate that Japan is expected to experience a long-awaited boost in wages. However, Japanese consultants can only look forward to a marginal offsetting of the cost of living pressures experienced in the country.
Domestic demand is a major driver of the Japanese economy. Unfortunately, consumer demand had subdued after a decade of ‘Abenomics’ with only disappointing growth in workers’ earnings, compounded by record inflation during QIV of 2022 and culminating in a 41-year-high rate of inflation of 4.3%1 in January 2023.
While Japanese inflation remains relatively modest compared to the US or the Eurozone, these levels represent a radical shift for an economy that has experienced decades of ultra-low inflation.
Now, despite famously stagnant salaries, Japanese industry has reacted and wage increases are finally on the cards across all sectors. Open source market analyses predict an average hike in salaries of 2.8% (with estimates ranging from 2.5% to 3.4%)2.
When also taking the re-opening of the country's borders to foreign visitors since October 2022 into account, we expect such wage increases to spur domestic demand and further stimulate economic activity. We therefore believe that the outlook for the remainder of 2023 is relatively positive for the Japanese economy.
Furthermore, Vencon Research’s survey data shows that the consulting industry is not excluded here and many of our clients have signalled growing order books. However, although consulting firms are also increasing salaries, the expected increases are far from those being offered by the country’s other industries, and average only 1.4%3 across career levels.
Many firms have also planned different levels of increases across their career grades, with a greater concentration on the lower career levels and less relative growth being offered to the more senior Management and Principal levels.
Since consultants already count as high-earners in Japan (as well as in most other countries worldwide), the lower expected salary growth percentages may be less surprising.
On the whole, while the consulting sector itself can hope to profit from a general uptick in economic conditions, Japanese consultants can only look forward to a marginal offsetting of the cost of living pressures experienced by the country.
For more information on this topic or on how you may successfully respond to the issues raised in this article, please contact Vencon Research – as always, we are happy to assist you.
[1] https://tradingeconomics.com/japan/inflation-cpi;
[2] Various inflation forecasting and research firms, incl. Japan Economic Research Center, Kienbaum, Korn Ferry Hay Group, Willis Towers Watson
[3] Vencon Research analysis; Client feedback