IF ABENOMICS means anything, it is the promise of the prime minister, Shinzo Abe, to restore healthy economic growth to Japan and end years of deflation. To that end the central bank, sloughing off its traditional caution, has flooded the economy with money and encouraged the yen to slide. Mr Abe has wooed investors with a resolutely upbeat message about Japan’s prospects. As a consequence, the stockmarket is up by three-fifths since Mr Abe came to office in late 2012, and even property prices in Tokyo are rising after years in the doldrums. Yet for folk who do not own bundles of shares or a flat in Tokyo’s trendy Daikanyama neighbourhood, the picture is very different. The mantra of Mr Abe and his advisers has been that a virtuous circle would come about whereby wages would rise and lift consumer spending, which in turn would boost investment by companies. Bingo: Japan would emerge from deflation. That is not happening and it is a conundrum.

On the one hand, the labour market is tight to bursting. That is partly because of strong demand for workers in, for instance, construction. But it is also because the population is shrinking fast. The number of Japanese is predicted to fall from 127m today to under 90m by 2060. Every year the working-age population falls by about 1m. Today unemployment stands at just 3.7% (dream on, Spain).

Yet despite a tight labour market, real wages continue to tumble (see chart). In May they fell by 3.8% compared with a year earlier—the steepest decline in years. That is despite the government’s use of moral suasion to get companies to hike basic pay in annual wage negotiations with unions this spring. Officials marched into boardrooms to demand higher pay for workers. Households were always likely to feel squeezed after the government raised Japan’s consumption tax in April, from 5% to 8%. Slightly higher inflation, stoked by the Bank of Japan’s massive easing, adds to the effect. But the government was expecting real wages to rise.

One factor contributing to the fall in real wages is deep-seated. Japan’s labour market is divided between regular employees, who are highly paid and protected against being fired, and low-paid, non-regular ones at the bottom of the heap. Non-regular workers filled 36.8% of all jobs in June, a near record. Most new jobs created since Mr Abe came to office have been for non-regular workers. They are not usually part of annual negotiations. Many are women, who end up earning less than men.

Companies must start hiring more permanent workers. Yet big firms already have too many overpaid and unproductive regular workers, Robert Feldman at Morgan Stanley points out. What is needed is for excessive safeguards for permanent workers to be cut back at the same time as pay and security for non-regulars are beefed up. But with permanent employees still making up the bulk of the workforce, bringing about such a change means spending political capital. Has the prime minister got the guts? Abenomics, and Japan’s recovery, rests on it.