Japan's employment situation has steadily improved in recent years — with the jobless rate in August at a fairly low 2.4 percent and the ratio of job openings to seekers at a 44-year high. Despite the tight labor market, however, workers' wages have not increased as fast as might be expected in the face of the manpower shortage. Meanwhile, labor's share of corporate earnings is at a 43-year low — which suggests there's more room for businesses to raise their employees' pay. Even as the economy continues to motor along in an extended boom cycle, growth in consumer spending remains uneven and fragile. How to translate the robust employment picture into more significant wage hikes that would drive up personal consumption has been and will be the key challenge for our economy going forward.

According to Finance Ministry statistics, the labor share of value added — the ratio of what is spent on employee wages and their welfare expenses out of what companies make — was 66.2 percent in fiscal 2017. After hitting a recent peak of 74.7 percent in fiscal 2008, when the world was hit by the Lehman Brothers shock, the average labor share (excluding financial and insurance sectors) has been on a steady downtrend, and the 2017 figure was the lowest since 65.1 percent in fiscal 1974.

That may not come as a surprise, since the labor share reportedly tends to drop when the economy is growing — and rise when the economy is hurting — because companies try to avert radical changes in their workers' wages. Still, the downtrend of the labor share seems to illustrate how Japanese firms earning record profits remain hesitant to give their workers hefty raises. Compared with 2008, operating profits of companies have expanded 2.3 times, but the wages of corporate employees are only 1.1. times larger. On the back of their robust profits, retained earnings of the companies combined rose 9.9 percent from the previous year to a record ¥446 trillion.