Spring Labor Wage Talks: Negotiations to Offer Opportunity to Kick-Start Virtuous Economic Cycle

Editorial

14:40 JST, October 29, 2023

The Japanese economy is at a turning point regarding whether it can break out of a prolonged period of low growth and realize a virtuous cycle of high wage increases and economic expansion. The labor and management sides should be cognizant of this during the shunto spring labor wage negotiations next year.

The Japanese Trade Union Confederation (Rengo) has formulated a basic stance for the spring 2024 negotiations, calling for a wage increase of “5% or more,” including a pay-scale rise and regular salary increases.

During this year’s bargaining, Rengo demanded “around 5%.” For this year, however, “around” has been changed to “or more” to strengthen the wording. In light of the increased burden on households caused by soaring prices, this updated phrasing indicates a powerful desire to expedite wage increases.

According to Rengo, the average wage increase in this year’s spring negotiations was 3.58%, the highest level in 30 years. However, wage hikes have failed to keep pace with rising prices, and — after subtracting price increases — the year-on-year wage figures for August fell 2.5%, marking the 17th consecutive month of decline.

Next year, workers’ pay must be raised to a level that outstrips the rise in prices. Rengo should strongly emphasize the importance of this point.

In a policy speech at the Diet, Prime Minister Fumio Kishida emphasized his intention to transform Japan from a “cost-cutting economy with low prices, low wages and low growth” to a “growth-oriented economy driven by sustained wage increases and active investment.” These concepts must be communicated to corporate managers.

Companies traditionally put priority on reducing expenses. Profits gained by cutting labor costs are used to pay dividends to shareholders or as retained earnings, and firms have not invested aggressively. Wage stagnation has stymied a rise in consumption and caused investment to stall, creating a vicious cycle that does not lead to growth.

The International Monetary Fund (IMF) has forecast that Germany will overtake Japan in terms of nominal gross domestic product (GDP) in 2023, pushing this nation into fourth place in terms of global economic ranking.

The yen’s recent depreciation has had a major impact, but it is also a result of an extended period of corporate negligence vis-a-vis the use of profits to raise wages and make investments, among other points.

Next year’s labor negotiations could serve to reverse this trend.

Some companies have already announced high wage increases. Suntory Holdings Ltd., for example, has said it will increase workers’ pay by about 7%. It is crucial for this trend also to spread to small and midsize enterprises and non-regular employees.

The rising costs of fuel and raw materials have made it difficult for small and midsize enterprises to operate. Large-scale entities that do business with such companies must be allowed to pass on higher costs through their transaction prices, making it easier for smaller firms to secure funds for wage increases.

Government support is essential, too. There is a strong need for the bold expansion of support measures, including tax incentives and subsidies for small and midsize companies that have increased wages.

(From The Yomiuri Shimbun, Oct. 29, 2023)