Japan to revise wages calculation in GDP, likely also amend budget due to data errors

TOKYO (Reuters) - Japan’s government said on Friday it will amend the calculation of workers’ compensation in the nation’s gross domestic product and probably revise its draft budget after it understated wages data for more than a decade due to faulty polling methods.

FILE PHOTO - Pedestrians walk at a scramble crossing at Shibuya shopping district in Tokyo, Japan September 15, 2017. REUTERS/Toru Hanai/File Photo

The revisions are not expected to change the pace of economic growth. All the same, it is an embarrassment for Prime Minister Shinzo Abe, because his government has enacted several policies to eliminate the risk of deflation by encouraging wages to rise.

Inaccurate wage data makes it difficult to assess whether Abe’s policies are working and could raise questions about the credibility of other data, leaving policy makers blind-sided in their efforts to foster sustainable economic growth.

“Escaping deflation is Abe’s biggest economic goal, so if you can’t trust the data you can’t make appropriate policy decisions,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“Only a year ago the government changed the sampling method to try to improve wages data. And now they’re saying they understated the data. Do we really know what’s going on?”

The Cabinet Office, which compiles GDP, said on Friday it will publish revisions for wages from 2016 to 2017 around the end of this month. Next month it plans to publish revisions to data from 2015 and earlier.

Japanese Finance Minister Taro Aso also said on Friday the government is likely to revise its budget draft for the next fiscal year to pay for a shortfall of employment insurance benefits caused by errors in the country’s wage data.

The likely budget revision - a rare move - would follow the revelation that the labor ministry miscalculated workers’ average wages for years.

The data error has caused the ministry to underestimate payments made under Japan’s employment insurance program, which includes unemployment benefits, and another insurance covering compensation for workplace accidents.

“Economic indicators provide the basis for decision on fiscal and economic policies and they must always be accurate,” Aso told reporters after a cabinet meeting. “It’s very regrettable that the wages data will be recompiled.”

The Labor Ministry said on Friday it understated monthly regular wage data from 2004 to 2017 due to inaccurate polling methods that reduced the sample size.

Labor Minister Takumi Nemoto told reporters he is still investigating the motives behind using a smaller sample size.

In compiling the monthly data, which covers some 33,000 firms with five or more full-time employees, the labor ministry is supposed to collect samples from all the companies that employ 500 or more workers.

But it turned out that the data sampling failed to cover two-thirds of some 1,400 businesses in Tokyo for an unspecified period of time, ministry officials said. Domestic media reported the sampling error extends back for 15 years.

To rectify its error, the labor ministry on Friday revised regular wage data from January 2012 to October 2018.

“We use monthly wage data for some charts in our economic outlook report,” a spokesman at the Bank of Japan said.

“We want to examine the impact of this incident based on material released today and the results of the (labor ministry’s) investigation.”

Chief Cabinet Secretary Yoshihide Suga said on Friday the government would examine all economic indicators.

The budget draft was compiled in December and was due to be sent to the parliament later this month for approval before April 1.

Abe’s cabinet last month approved a record 101.5 trillion yen ($937.12 billion) annual budget draft, featuring spending to offset the pain of a planned sales tax hike scheduled for October.

($1 = 108.31 yen)

Reporting by Tetsushi Kajimoto; Editing by and Richard Borsuk & Shri Navaratnam