Higher wages can boost economy

The prospect of Japanese companies granting sharp wage increases this spring appears mixed as the annual talks on wage hikes get under way between labor and management. For the second year in a row, Prime Minister Shinzo Abe is adding pressures as well as offering incentives to the business community to boost wages. Labor unions are demanding pay raises that outpace last year’s hikes. Major firms that have enjoyed record profits may be ready to comply, but others say that uniform raises are not feasible given the mixed picture of the economy.

Decisions on wage hikes, of course, should be left up to each firm according to its business plan and financial resources. Companies making profits, however, need to realize that sharing those profits with their workers and other stakeholders, including subcontractors, will spread their gains through broader segments of the economy and, ultimately, benefit themselves.

According to a tally by the Japanese Trade Union Confederation (Rengo), wage negotiations between labor and management last year yielded an average 2.07 percent pay increase — the sharpest in 15 years — as many of the large firms increased basic pay scales for employees.

Abe, who took the unusual step of urging major companies that benefited from the yen’s fall to translate the gains into higher pay for employees, went on to take credit for the wage hikes as a fruit of his economic policies ahead of last month’s Lower House election.

However, the pay increases were not enough to offset the steep rise in prices that resulted from the rising cost of imports because of the weaker yen and the increase in the consumption tax from 5 to 8 percent in April.

Household income continued to fall on a net basis for 17 months to November, and per-household spending declined sharply following the April tax hike, causing the economy to shrink for two consecutive quarters to September.

Of the 2.07 percent hike last year, about 1.5 percentage points came from an annual seniority-based automatic raise built in the workers’ pay scales, with the remaining 0.5 percentage point reflecting the increase in the base-pay scale itself. This year, Rengo is demanding a 2 percent increase in the base-pay scale.

In the talks with business leaders and labor union representatives that have been held since fall, Abe urged companies making large profits — thanks to the weak yen — not only to increase wages but also to invest more and raise the prices they pay subcontractors in transactions.

In response, Keidanren (Japan Business Federation) chief Sadayuki Sakakibara has stated that the business community would make utmost efforts to raise wages. Abe has also offered corporate tax cuts beginning in fiscal 2015, using it as a carrot in urging businesses to increase wages.

The government’s intervention in the private-sector wage negotiations — which in principle should be left to management and unions at each firm — has drawn some criticism. Some companies, especially small- and medium-size ones, simply cannot afford to raise wages after their earnings were hit by rising costs due to the yen’s fall.

But profitable companies should engage in wage negotiations with a view toward how they can share and spread their gains through pay raises. They can also facilitate wage hikes for the employees of their subcontractors by using their profits to improve the terms of transactions with those businesses.

Collective efforts by many of the profitable large companies to raise wages will ultimately have a positive impact on the entire economy and increase consumer spending.

Such a perspective will also be important in dealing with the issue of the nation’s irregular workforce.

To trim manpower expenses amid the economic doldrums that the nation has been in since the 1990s, companies have cut back on full-time employment and relied increasingly on part-time and temporary workers, who today account for nearly 40 percent of the nation’s workforce.

The average annual income of such workers in 2013 was far less than half that of regular full-time employees, according to the National Tax Agency.

Increasing the pay of irregular workers or making them full-time employees will add to companies’ manpower costs. But raising the income of such workers will lead to more robust consumer spending. Improving their employment conditions should be high on the agenda of labor-management talks.

  • Paul Johnny Lynn

    While of course it’s natural for companies to want to decrease costs and raise profits, I’ve never been able to see anything but pure greed behind the idea of paying your staff so poorly that they are forced to live from pay-check to pay-check.

    • Shiki Byakko

      Well, in japan most people are employed by small companies…

      • Paul Johnny Lynn

        And…..???

      • Shiki Byakko

        The article says it, small companies cannot afford to rise salaries.