Salary Deflation

Salary Deflation

With all the recent news about Japanese price deflation, it seems not much attention is being paid to the other side of the equation: namely salary deflation. Although I'm not hearing of too many employers demanding lower salaries for their existing employees, there is plenty of evidence that salaries are coming down for new employees and also for those moved between divisions or group companies. It's a case of supply and demand, and right now supply is at a peak.

The hardest hit group is, of course, those staff that are older than 45-50 years of age. In this bracket, major Japanese companies have been eager to offer "early retirement" packages to get their wage bills under control again. Smaller firms usually just pitch the person out on the basis of "severe business circumstances". Often, when a person of this age moves out of a secure, well-paying job, they find it extremely hard to re-enter the workforce and thus in the end have to accept a lower-paying position just to stay employed. I have seen numerous examples of mid-managers dropping from salaries of JPY12-15M to less than half that amount.

For younger employees, the salary drops vary according to expertise and market demand. For example, recently we are seeing a lot of people with company start-up experience, such as administrators, managers, salespeople, etc. But since the venture market in general is in such bad shape, the demand is almost zero. Thus, someone who has excellent experience in every aspect of managing a company start-up, including office selection, fit-out, HR set-up, hiring initial employees, secretarial, press relations, etc., is now being forced back into a secretarial or administrative position. Correspondingly, the salary hit is from a typical JPY8-10M a year down to only half that.

There are several strategies that I can offer to help prevent your falling victim to salary deflation. The first and simplest is not leaving your current job if you can help it. You may not be happy, but unless you have another prospect already lined up, stay where you are if you can. Clearly, the better your performance, the more likely it is that the company will want you to stay.

A second strategy is to migrate your skills to an area that you know is in short supply in the market. Check out the various online job boards (www.daijob.com) and see where the job opportunities are right now. If you do lose your job, you might want to seriously consider going overseas to a low-cost location (e.g., Australia or New Zealand) and studying some advanced course in your field there.

A third strategy is to become a consultant in your field. While this compromises job security, on average consultants make more monthly income than employees do because they reduce the employer's burden of health insurance and other benefits. As a consultant, the best way to ensure continuity of income and thus avoid deflation is to work for 3-4 companies over the same monthly period. If one consulting job dies, you'll have the other 3 to cover for you. Furthermore, as self-employed people, consultants are able to take major tax deductions for expenses incurred in the course of their doing their business. These deductions can apply to apartment costs, books and magazines, some meals (those eaten with clients), travel, and all kinds of other typical expenses.

If you are considering a career in the recruiting industry, you can drop Terrie Lloyd an email for more advice at terrie.lloyd@daijob.com. You can also see his weekly newsletter, called Terrie's Take, at www.terrie.com.