Japan’s “Lost Generation” Sees Modest Wage Gains Payroll Finds

Wages for Japanese workers in their 40s and 50s rose slightly in the second quarter, providing a much-needed boost for the so-called “lost generation”—those who entered the workforce during the hiring freeze of the 1990s and 2000s and have faced stagnant pay for decades. This wage increase is crucial for Japan’s broader economic recovery, as consumption by this age group is a significant driver of growth.

Data from Payroll, a Tokyo-based salary accounting service, showed that in the April-June quarter, wages for workers in their 40s increased by 2.7% year-on-year, while those in their 50s saw a 1.0% rise. This is a marked improvement from the same period last year when wages for both groups declined by 0.1%.

Economists attribute the recent gains in part to the 5.1% wage increase negotiated by unions and large corporations during the annual shuntō spring wage negotiations. While pay raises have been more substantial for younger workers in recent years, the lost generation has seen slower progress.

Middle-aged workers make up a larger proportion of the workforce than their younger counterparts, and raising their wages at the same pace would significantly increase labor costs for companies, explained Tsukasa Koizumi, an economist at the Hamagin Research Institute. As companies seek to maintain their operations, they focus on hiring younger workers, whose wages must be increased amid tightening supply and demand.

In the April-June quarter, wages for workers under 30 rose by 4.2%, and those in their 30s experienced a 3.6% increase. Despite these gains, Koizumi cautioned that wage momentum for older workers is likely to remain challenging. Due to seniority-based pay and Japan’s lifetime employment system, wages for those in their 40s and 50s are already substantially higher than for younger workers. As a result, it is less feasible for companies, particularly smaller ones, to sustain steady pay increases for middle-aged employees.

Compensation for this age group is critical to Japan’s economy, as they tend to spend more than younger workers. Last year, average monthly household spending for individuals aged 50 to 54 was $2,480, the highest among all age groups. These households often face additional expenses, such as education costs for their children, making them more cautious with spending, Koizumi noted.

While this year’s shuntō has bolstered wage growth for middle-aged workers, the increase is not substantial enough to significantly boost consumer confidence, Koizumi added. To further improve wages for the lost generation, economists emphasize the need to encourage career changes and increase labor market fluidity. However, older workers often hesitate to change jobs, highlighting the importance of reskilling opportunities.

“Middle-aged workers can develop new skills that allow them to better market themselves,” Koizumi suggested. Kazuki Fujimoto, a researcher at the Japan Research Institute, echoed this sentiment, stating that raising productivity is key to boosting wages for middle-aged employees. “The government must support these workers in acquiring new skills, and it is urgent for companies to leverage this support to invest more in the human capital of their middle-aged workforce,” Fujimoto emphasized in his report.

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