Wage hikes can help end deflation

This year’s wage negotiations have started. The Japan Trade Union Confederation (Rengo), Japan’s largest labor organization, has decided for the first time in five years to demand across-the-board raises in wage bases.

Wage negotiations will reach a climax in March when the management of major industrial sectors are expected to make wage offers. Both labor and business leaders must do their best to stop deflation caused by a decrease in wages.

The Abe administration has been telling both labor and business leaders that wage raises are important for pulling Japan out of deflation. It established a conference composed of government, labor and management leaders, and toward the end of 2013, the conference issued an agreement that called for channeling increased business profits into wage raises.

In accordance with the agreement, the Japan Business Federation (Keidanren), Japan’s most powerful business lobby, has announced for the first time in six years that it accepts the need to raise wage bases. But its commitment is weak. Keidanren has dropped its past policy of maintaining that there’s no room for increasing wage bases. But its document related to wage negotiations this time includes an evasive acceptance of higher wage bases, stating only that an approach different from the former one is an option. And the document states that the principle that management decides on wage offers according to the companies’ ability to afford them remains the same.

What Keidanren fails to acknowledge is that major corporations’ tendency to restrain capital investment and to cut costs through restructuring and wage restraints is a main cause of deflation.

Recently the business environment has greatly changed. The drastic decrease in the yen’s value, triggered by the Bank of Japan’s quantitative monetary easing, has helped to restore the fiscal 2013 profitability of many major companies, especially export-oriented companies, to the level that prevailed before the Lehman Brothers shock of 2008.

Rengo demands a 1 percent raise of wage bases in addition to a 2 percent raise in seniority-based increases. Industrial sectors that have benefited from the cheap yen, including automakers and electronics makers, should raise wage bases to a level that will enable workers to enjoy the fruits of the economic recovery.

It is said that total internal reserves stockpiled by businesses amount to ¥220 trillion. It is time for businesses to use these reserves to increase wage levels as well as capital investment. Executives should remember that workers have had to go without base-pay raises for many years. Major corporations should also let their subcontractors — which are mostly small and medium-size companies — raise the prices of their products so that they too can raise their workers’ wages.

Both labor and business leaders must also pay attention to the working conditions of the irregular workers — those hired on temporary contracts — who accounts for nearly 40 percent of Japan’s workforce. Rengo is demanding new rules that will help them become regular employees and wants them to get an hourly wage increase of ¥30. Serious efforts should be made to stabilize the lives of these workers, which will in turn help the nation’s economic recovery become self-sustaining as consumer spending increases.

As the consumption tax hike from April is expected to result in a slowdown in consumer spending, labor and business leaders have a heavy responsibility to reach an agreement on wage increases.