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Soaring prices are weighing on the Japanese economy. To overcome this, wages must be raised substantially. The trend for wage hikes will determine the future direction of the Japanese economy. The shunto spring labor wage negotiations are facing a major turning point.
The Japanese Trade Union Confederation, known as Rengo, has formalized a plan to seek a pay hike of about 5% in next year’s shunto. This is the highest-level demand by Rengo since 1995, when the confederation sought a 5% to 6% increase.
Prices of energy, food and other commodities have risen sharply. The consumer price index, excluding perishable items, rose 3.6% in October from a year earlier. Inflation-adjusted real wages slid 2.6% year-on-year in October for the seventh consecutive month of decline.
There are concerns that consumer spending could drop and the economy could fall into recession, if wage growth continues to lag behind prices. Looking at current price levels, even Rengo’s demand cannot be said to be sufficient.
Regarding the breakdown of the 5% request, Rengo said it will aim for an about 3% pay-scale increase to raise the level of base pay for employees across the board, and an about 2% regular annual pay raise based on employees’ age and length of employment.
The pay-scale increase is especially important. Since 2016, Rengo has called for wage hikes of around 4%, but the increases have actually been around just 2%, of which pay-scale hikes are believed to account for less than 1%.
Pay scale is used to decide employees’ retirement allowances and overtime pay, among other things, providing significant benefits to workers. A pay-scale hike is believed to be more effective in boosting consumption than bonuses and other lump-sum payments, which tend to go into savings.
On the other side, implementation of a regular pay hike will not increase a company’s total labor costs if the number of employees and age structure remain the same, because people retire each year. To cope with rising prices, it is important for companies to demonstrate the willingness to implement a pay-scale hike.
Japan’s economy has been in a prolonged period of deflation since the late 1990s, and the average wages of workers have fallen to the lowest level among major developed countries. Labor unions also have prioritized job security over wages, and in the 2000s there was a temporary halt to pay-scale increases.
However, prices are rising worldwide and wages are growing significantly in the United States and European nations. If this trend continues, Japan will be the only country left behind further.
If pay increases are not promoted without hesitation, companies that sell goods and services will also be hurt by sluggish consumption.
The shunto annual spring wage negotiations still involve the labor-management practice of determining the level of wage increases horizontally by industry, or according to the hierarchy of company sizes. Many companies are performing well partly due to the tailwind of the weaker yen. Instead of being bound by this practice, each company should allocate funds to employees in proportion to its own earnings.
Other essential issues include the spread of wage hikes to small and midsize companies, which account for about 70% of employment in the nation, and the improvement of working conditions for non-regular workers.
