Wage Hikes At Big Firms a Key Step Toward Real Wage Growth; Will Small, Medium Companies Do Likewise?

By Shinsuke Ishiguro and Shuntaro Murase / Yomiuri Shimbun Staff Writers

1:00 JST, March 15, 2024

Many major companies have taken a big stride toward real wage increases for their employees, and now attention is shifting to whether small and midsize enterprises (SMEs) will follow suit.

Numerous big firms — especially in the important automotive and electronics industries — responded Wednesday to their unions’ demands in this year’s shunto spring labor wage negotiations by offering significant wage hikes that exceeded the increases provided last year.

Many firms in the retail and food service industries also agreed to large wage increases. The spotlight will therefore be on whether that will lead to a rise in real wages, which have declined for 22 consecutive months on a year-on-year basis because wage growth is failing to keep up with climbing prices.

Achieving that turnaround will require the wave of wage increases to reach nonregular employees and SMEs, whose wage negotiations are about to get into full swing.

Akihiro Kaneko, chairman of the Japan Council of Metalworkers’ Unions, an umbrella organization representing labor unions in the automotive, electronics and other industries, hailed the positive responses to wage increase demands. “The social role of labor and management to drive the Japanese economy has been fulfilled,” Kaneko said at a press conference Wednesday.

Since the start of this year’s shunto negotiations, both labor and management took the unusual step of agreeing to seek wage hikes that were higher than those offered in 2023. The average wage increase rate in that year’s shunto negotiations was 3.58%, the highest level since an increase of 3.90% in 1993.

However, many companies’ positive approach to wage hikes was largely shaped by their urgent need to secure talented human resources.

On Wednesday, Nippon Steel Corp. offered a larger pay-scale raise than its union had sought. Hitachi, Ltd. and other major electronics makers agreed to meet the full amount their unions had proposed. This receptive response to union demands was evident across a wide range of industries, including the food service industry, which remains plagued by labor shortages. Skylark Holdings Co., which operates the Gusto and other restaurant chains, decided on a 6.22% wage hike.

The Japanese Trade Union Confederation (Rengo) will release its first results on pay deals Friday. Morgan Stanley MUFG Securities Co. forecasts the average wage increase rate will be 5.2%, comfortably eclipsing last year’s figure.

Turning positive in autumn?

A major focus in the months ahead will be whether Japan’s real wages can snap their losing streak and actually turn positive. Real wages show a household’s purchasing power by reflecting price fluctuations on total cash earnings, or nominal wages, which indicate the average wage per worker. Personal consumption was amended downward in the revised gross domestic product figures for the October-December 2023 quarter released Monday by the Cabinet Office, as higher prices cast a shadow on spending.

“Disposable income will increase due to these wage increases and fixed-amount tax cuts this summer,” said a senior official of Keidanren (Japan Business Federation), which has long flown the flag for wage increases. “If commodity prices settle down, I think real wages could turn positive in around autumn.”

However, Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, is more cautious about the likelihood of such a development. “If companies raise their prices because they see consumers’ purchasing power has increased because of these wage hikes, real wages might take longer to turn positive,” Shinke pointed out.

Passing costs on

Lifting wages at SMEs, which employ about 70% of the workforce, will be essential for bumping real wages into positive territory. These companies will need to have customers accept higher prices for the products and other goods they sell. But according to the Japan Chamber of Commerce and Industry, about 20% of SMEs are unable to engage in price negotiations with their customers. In some cases, SMEs were even asked to lower their prices.

Sagami Jushi Kogyo, a company that processes plastic, is one small business facing a predicament over wage increases. “We want to lift wages, but it’ll be difficult to offer more than we did last year,” revealed an executive of the company based in Sagamihara, Kanagawa Prefecture. Soaring material costs and other expenses have hit Sagami Jushi Kogyo hard.

“We’re unable to reflect those additional costs in prices,” the executive said.

Improving the labor conditions of nonregular workers, who make up about 40% of the workforce, also will be a key factor in lifting real wages. Increasing wages to a degree that is tangible for all workers will be crucial.

The initial results of this year’s shunto negotiations encouraged Katahiro Yasukouchi, head of the Japanese Association of Metal, Machinery, and Manufacturing Workers, an organization comprising mostly of unions of machinery- and metal-related SMEs. “The increases decided by the major companies have given us courage,” Yasukouchi said Wednesday. “We’ll tenaciously negotiate to reduce disparities.”