Japan’s main labor unions are set to win their biggest wage hikes in decades as employers acquiesce to government calls to lift pay amid rising inflation.
(Bloomberg) — Japan’s main labor unions are set to win their biggest wage hikes in decades as employers acquiesce to government calls to lift pay amid rising inflation.
Annual wage negotiations between key unions and their employers are due to reach preliminary conclusions later on Friday, an outcome that is being closely followed in financial markets. That’s because the Bank of Japan has made stronger wage growth a condition for paring back its ultra-easy monetary policy.
Prime Minister Fumio Kishida has also positioned higher wages at the center of his so-called New Capitalism drive to expand income distribution. The cost-of-living crunch caused by inflation, the strongest in four decades, threatens to dent his signature policy before it has a chance to gain traction ahead of local elections.
There are plenty of signs that pay will go up much more than in recent years.
Uniqlo-operator Fast Retailing Co. in January announced raises of up to 40% for full-time employees, and Nintendo Co. and Toyota Motor Corp. followed suit. The metalworkers’ union, which includes workers from Panasonic Corp. and Hitachi Ltd., announced Wednesday that its members were getting their biggest wage hikes on records going back to 2014.
In addition to calling for higher pay, Kishida has ramped up incentives including tax breaks to encourage more employers to fall in line.
“The influence of peer pressure is pretty strong in Japan,” said Mari Yamauchi, visiting professor at Akita International University. “When the vision that wages should be raised is shared among stakeholders, especially the government, it’s likely to make corporate managers feel that they need to raise wages too.”
Rengo, the country’s largest labor union federation, is expected to summarize the initial outcome of the so-called Shunto wage negotiations on Friday afternoon. Economists expect the talks to result in overall wage gains of 2.95%, according to a Bloomberg survey earlier this month. That would be the biggest increase in nearly 30 years.
Departing BOJ Governor Haruhiko Kuroda has said he wants to see sustained wage increases of 3% to ensure stable inflation of 2%. That’s part of a broader goal of generating a cycle of higher consumption and economic growth in Japan.
Still, even if the Rengo figures reach 3%, doubts remain over how widely wage gains will spread and whether they will just be a one-off blip, factors that may continue to give the central bank sufficient reason to stick with its stimulus program.
Wage hikes appear long overdue in Japan, with a working-age population around 15% smaller than it was in 1995.
In dollar terms, salaries in the world’s third-biggest economy have largely remained flat over the last two decades, while they rose around 25% in the US and 18% in France. South Korean workers have been earning more than the Japanese per capita since 2015, according to the Organization for Economic Cooperation and Development.
Yet, when Rengo originally demanded a 5% wage hike, few expected it to be achieved, given the country’s feeble trend of pay growth. The collapse of the bubble economy in the early 1990s drove unions to focus on protecting lifetime employment rather than agitating for higher pay.
Labor negotiations in recent years focused on topics like work-life balance, and have rarely been as combative as they were in the 1950s when Shunto, which means “spring offensive” in Japanese, began. That’s led to static employment and wages, while keeping unemployment low, even through the pandemic.
Unions have also struggled with a gradual decline in membership in the past few decades. The overall unionization rate hit a fresh low of 16.5% last year, with membership at 12.5% for women and 8.5% for part-timers.
For smaller businesses, which employ some 76% of Japanese workers, matching their bigger peers in lifting pay is a challenge.
Smaller firms tend to have more difficulty passing on higher costs to customers, and many of them may avoid significant gains in base pay, opting instead for one-off bonuses to avoid long-term commitments amid an uncertain economic outlook.
Katsuyuki Shinkai, a pub owner in his 40s in western Japan, said it was hard to find a way to pay more wages while grappling with higher costs for everything from electricity to food supplies.
“Materials costs are at record highs. Utilities are at record highs. So where are we getting the money for wage hikes?” he asked.
Shiro Harada, president of Lumica Corp., which makes glow sticks and other novelty items, said he believed the wave of wage increases was likely to be temporary.
“Right now they’re just listening to Keidanren and bureaucrats,” the 79-year-old executive said, referring to Japan’s biggest business lobby. “Raising wages is something that should be part of management efforts rather than something you do because you’re told to.”
–With assistance from Takahiko Hyuga, Grace Huang and Kathleen Hays.
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