Will pay hikes become a trend?

The pay raises offered by leading Japanese firms this week are an encouraging sign that some companies, at least, are translating the improved corporate earnings posted the past year into higher wages for workers — thanks partly to unusual pressures put on management by the government.

But it remains unclear how the wage hikes at top-notch firms will spread to small and medium-size firms — or benefit the nation’s growing ranks of irregular workers — and help keep consumer spending from stalling after the consumption tax rate increases next month by three percentage points.

In the annual wage negotiations with their unions, trendsetting major automakers and electronics firms — many of which saw their earnings climb sharp due partly to the yen’s 20 percent decline in value against the dollar since Prime Minister Shinzo Abe took office — have agreed to the highest pay raises in years, including hikes in monthly pay scales that they had been reluctant to offer because such raises will increase fixed manpower costs amid tightening international competition.

The Abe administration has repeatedly urged the business community to turn their profits into higher pay for workers, saying that the improved corporate earnings need to create a positive cycle of higher pay and increased consumption that leads to more investments. The economic upturn registered after Abe took office in December 2012 was driven mainly by his aggressive fiscal stimulus and the radical monetary easing by the Bank of Japan. It has been gradually losing steam, while consumer spending is widely feared to slump after the April tax hike.

As the administration apparently needed to make sure that its business-friendly policies also benefited households, it offered tax cuts for companies while pushing them to raise employees’ wages.

With the wage negotiations were in their final stages this week, Akira Amari, the economic revitalization minister in the Abe Cabinet, went on to say that the government will take some action against companies that posted higher profits but did not raise wages for their workers, “because they are not cooperating with the efforts to achieve a positive economic cycle.”

Many of the companies with good earnings results responded with sharp wage hikes and hefty bonuses for their workers, while raises remained more modest at other firms. Overall, wage increases to be achieved in the ongoing negotiations are unlikely to be large enough to offset the increased household burden of the consumption tax hike from 5 to 8 percent.

The wage talks at the leading firms represent only a small portion of the nation’s workforce. It is still not certain whether the positive trend will spread to small and medium-sized companies, whose earnings situations are much more mixed, with many firms suffering from rising costs of material imports.

While roughly 70 percent of Japan’s employed workers are hired by small and medium-sized firms, their average pay remains 70 to 80 percent of the levels of their counterparts at major firms.

Largely left out of the annual wage talks are the growing ranks of the irregular workforce, including part-time workers and temporary dispatched workers. The number of such workers has reached roughly 20 million, accounting for nearly 40 percent of the nation’s employed workforce. However, only a small fraction of them are unionized and represented in organized talks with employers.

Behind Japan’s prolonged deflation — which the Abe administration has pledged to overcome — was the long downtrend in the wage income of the nation’s workers since the late 1990s, and part of that was the result of businesses turning more to the lower-paid irregular workforce.

The Japanese Trade Union Confederation (Rengo) made better conditions for irregular workers one of the objectives in these wage talks, including introduction of a minimum ¥1,000 hourly wage.

Some major firms including Toyota and some retailers are reported to have offered raises for seasonal workers and part-time employees. There are reports that wages for temporary workers have been rising in some sectors due to tightening labor demand.

What’s needed, though, are more policy measures to improve the overall conditions for these workers and their job security — if the Abe administration is really serious about combating deflation by bumping up people’s wages.