Wage hikes for a sustained recovery

On the back of improved sales and profits, companies should do their part to put the Japanese economy back on a growth path by increasing workers’ wages.

The government and the Bank of Japan set the stage for this year’s economic upturn with fiscal and monetary steps, and the subsequent fall of the yen aided the performance of major firms. It’s now the turn of the private sector to do what it can to boost consumer spending and end deflation.

The combined April-September net profits of roughly 850 firms listed on the First Section of the Tokyo Stock Exchange increased 2.5 times from a year ago, according to a tally by SMBC Nikko Securities. Net profits rose 3.2 times in the manufacturing sector, with the automobiles and other transport equipment makers particularly aided by brisk sales and foreign exchange gains.

Toyota Motor Corp.’s half-year net profit rose 82.5 percent to a record ¥1 trillion. Many big manufacturers have revised upward their earnings forecasts for the full year to March 2014.

Toyota President Akio Toyoda said it is natural for management to reward its workers with higher pay when profits go up. Expectations are high for the nation’s biggest manufacturer to set the trend for wage hikes during wage negotiations next spring.

The late 1990s’ financial crisis prompted many Japanese firms to prioritize deleveraging to beef up their finances and stay afloat. When the crisis subsided, they continued to accumulate internal reserves such as retained earnings to guard against hard times.

Cash and deposits owned by corporations reached ¥220 trillion by the end of June. Even after the companies paid off their debt, they have remained hesitant to use surplus funds to boost investments or to increase worker pay. Companies need to realize that increasing wages and investments is crucial ingredients for a sustained economic recovery and an end to deflation.

Total salary payments by Japanese firms are estimated to have dropped from ¥216 trillion in 2000 to ¥196 trillion in 2011. Now that consumer prices have started to pick up, corporate management is urged to raise worker pay to match the price increases. An across-the-board 1 percent wage increase would cost all firms in Japan an additional ¥2 trillion — which does not appear unreasonable given their retained earnings.

It’s also important that wage hikes are not limited to major companies and businesses located in big cities. A survey of 2,682 Tokyo-based small- and medium-size firms by the Tokyo Chamber of Commerce and Industry shows that one out of three firms paid more compensation to workers in the April-July period than they did a year before. About two-thirds of these businesses raised employees’ base monthly pay.

Additional efforts are needed to spur companies across the country to take similar steps. To this end, we urge the administration of Prime Minister Shinzo Abe to extend support such as tax benefits to companies for which the yen’s fall has been a disadvantage, so that wages can be raised more broadly across the country.

  • http://www.sheldonthinks.com/ Andrew Sheldon

    Companies are not charities. They wage their wage levels when their workers earn them. If you know your value, then you threaten to leave. When you don’t you pay an opportunity cost. Its true that companies will attempt to keep wages low; and that’s simply because these are difficult trading times, and they take advantage of those. That tragic dispensation arises compliments of the US govt, the Fed Reserve and every ignorance or complicit politician/banker who did nothing but ride the wave. You can pretty well blame everyone but the critics, including the ignorant, unassuming voter who gives their sanction to politicians. They are the most unaccountable. The only power they have is really to ‘metaphysically’ to bang their head against the wall, oh and to compartmentalise their lifes and make money or ineffectual, indolent children.