Companies that are performing well have a responsibility to increase pay

Editorial

12:30 JST, January 19, 2022

Pay increases are essential for the realization of the “virtuous cycle of growth and distribution” that the government is aiming for. Companies that are performing well must again promote a policy of an increase in wages, which have been stagnant.

The Japan Business Federation (Keidanren) has released its Report of the Committee on Management and Labor Policy, which serves as the management side’s policy for shunto labor-management wage negotiations in spring. Although there is a large disparity in the performances of companies amid the novel coronavirus pandemic, the report urged companies that are doing well to raise base wages across the board.

Prime Minister Fumio Kishida has called for wage increases to be the starting point of a virtuous cycle. This is a scenario that will lead to a recovery in consumption and an increase in corporate investment and production.

To this end, the prime minister has stated that he expects a wage increase of more than 3% in this spring’s negotiations. The Keidanren report said, “Pay increases appropriate for the launch of a new form of capitalism are desired.” The results of the spring negotiations will also serve as a litmus test for the realization of the prime minister’s policies.

The rate of wage increases for major companies had been above 2% since 2014 due to the government-led labor-management negotiations during which the government urged the management side to raise wages, but in 2021 it was below 2%.

However, many companies have been performing well even during the pandemic. Among companies listed in the First Section of the Tokyo Stock Exchange, excluding banks and other financial companies, combined net profits for the half-year period ending September 2021 more than doubled from the same period in the previous year. Companies with surplus capacity have a responsibility to return profits to their employees in the form of wages.

According to the Organization for Economic Cooperation and Development (OECD), Japan’s average wage in 2020 — based on purchasing power parity adjusted to account for differences in price levels — is about 50% of the average U.S. wage in dollar terms and lower than that of South Korea.

Based on each country’s currency, wages in the United States, Britain, Germany and South Korea have increased 1.5 to 2 times from 20 years ago, while wages in Japan have decreased.

One of the reasons for this is the increase in non-regular employment — where wages are lower — which has pushed down the average wage. The treatment of non-regular workers, who account for about 40% of employment, must improve to raise wages across the economy.

Companies’ internal reserves — the accumulation of profits — exceeded ¥480 trillion at the end of March 2021. It is also important to channel this money into capital investment in such areas as digitization and decarbonization, and to enhance growth potential so that wage increases can continue.

Inflation is spreading around the world, and there are signs that it is spreading to Japan as well. Due to such factors as high crude oil prices, the corporate price index, which shows the prices of goods traded among companies, rose 8.5% in December from the same month in the previous year.

The consumer price index has also risen, albeit slightly, and the Bank of Japan has raised its forecast for the year-on-year increase from 0.9% to 1.1% for fiscal 2022.

If the increase in prices is larger than the increase in wages, it will put pressure on household finances and have a negative impact on the economy. While keeping an eye on price movements, it is hoped that the spring labor-management wage negotiations will lead to steady wage increases.

— The original Japanese article appeared in The Yomiuri Shimbun on Jan. 19, 2022.