Next Year’s Shunto: Help Small, Midsize Companies Raise Wages in Annual Talks

Editorial

16:25 JST, October 26, 2024

To stabilize people’s lives as they are suffering from high prices, it is necessary to extend the wave of wage increases to small and midsize enterprises. It is important for labor and management to share this view, and also for the government to take measures to support small and midsize enterprises.

The Japanese Trade Union Confederation (Rengo) has formulated a basic plan for the 2025 shunto spring labor wage negotiations, calling for a wage increase of “5% or more” overall and “6% or more” for small and midsize enterprises. The targets are a combination of a pay-scale hike to raise the level of base pay for employees, and regular salary increases.

High prices have continued since the spring of 2022 due to factors such as supply constraints during the COVID-19 pandemic and soaring energy costs caused by Russia’s aggression against Ukraine.

In light of struggling household budgets, Rengo sought an overall pay increase of “around 5%” in the 2023 shunto negotiations and “5% or more” in 2024. As a result, this year’s wage increase rate was 5.1%, the highest level in 33 years.

However, wage increases have not kept pace with rising prices. Real wages, which reflect the impact of prices, saw negative growth for 26 consecutive months from April 2022 to May this year. This summer, real wages temporarily increased, only to turn negative again in August.

Private consumption has been weak as households have become more thrifty due to prolonged high prices. The Japanese economy is at a critical juncture as to whether it can completely overcome deflation. Labor unions must have a strong will to negotiate with management.

Small and midsize enterprises, which account for about 70% of all employment in Japan, are lagging behind in raising wages, causing a widening gap between workers at small and large businesses. Rengo has decided to add one percentage point to its wage increase target for small and midsize enterprises probably because it feels a sense of urgency over the widening gap.

As small and midsize firms are struggling to pass on increased costs through their sales prices in transactions with large companies, they have limited funds available to raise wages.

According to a survey by the Small and Medium Enterprise Agency, less than 60% of respondents were able to pass on all or some of their increased labor costs through their sales prices. A quarter said they were unable to do so at all.

While it is becoming easier for small and midsize firms to pass on higher raw material costs through their sales prices, many large companies still oppose their doing so regarding labor costs. It is hoped that the government will further strengthen its monitoring to ensure appropriate transactions.

Raising the minimum wages is also important to shore up the Japanese economy. In the current House of Representatives election campaign, many political parties have called for measures such as raising the minimum wages to ¥1,500, but they lack persuasiveness.

The ruling Liberal Democratic Party has stated that it will achieve the goal in the 2020s. However, this would mean continuing to raise wages at an extremely high level every year. If it is a mere slogan unaccompanied by concrete proposals to achieve the goal, it will not appeal to voters.

Small and midsize companies have many workers who are paid at or near the minimum wages. The government should devise measures to increase such companies’ wherewithal to raise wages by supporting investments in labor-saving improvement and digitization to compensate for labor shortages.

(From The Yomiuri Shimbun, Oct. 26, 2024)