As the annual pay talks between unions and management effectively get underway, it is looking increasingly likely that wage hikes at major firms this spring will be smaller than last year thanks to growing uncertainty over global demand and the course of Japan’s economy. What should get greater attention is how broad-based wage increases will be across the nation, including small and medium-size businesses and among the growing ranks of irregular workers.
The administration of Prime Minister Shinzo Abe remains on the offensive, maintaining its pressure on businesses to turn more of their increased profits into higher wages, in the hope that increases in workers’ income will boost consumer spending and energize the economy, which remains a mixed picture as Abe’s trademark economic policies enter their fourth year. Personal consumption, which accounts for 60 percent of Japan’s gross domestic product, has yet to bounce back from the blow it suffered from the April 2014 consumption tax hike.
Business leaders have been going along with the calls of the administration, which pursues policies friendly to them, such as corporate tax cuts, but they also note that corporate profits are uneven and the ability to raise wages differs between companies and industries. And the labor unions are more subdued this year in their demands, with the union at Toyota Motor Corp. calling for half of what it had demanded last year.
The Abe administration likes to take credit for turning the economy around, but members of the administration appear increasingly frustrated that the companies enjoying the benefits of Abenomics, including the yen’s sharp fall against the dollar, are not spending enough on manpower or capital investments, and instead are hoarding their profits.
But a sober assessment of current economic conditions makes the subdued responses of both management and unions seem more reasonable. China, which this week announced that its economic growth in 2015 was the lowest in 25 years, appears set for further slowdowns this year and next, according to International Monetary Fund forecasts. Concern over China’s slowing growth is a key factor behind the global stock market turbulence since the beginning of the year, in which the Nikkei 225 average on the Tokyo Stock Exchange fell in all but two trading days so far and on Thursday plunged to its lowest point since October 2014.
The recent rise in the value of the yen as a safe asset amid the volatility in share prices and the continuing fall in oil prices threatens to eat into the profits of major firms that have been supported by the weak yen. Sluggish inflation in recent months, under the weight of falling oil prices and weak consumer spending, has weakened labor’s leverage to demand sharp wage hikes.
Wage negotiations at Toyota, the nation’s largest automaker, are closely watched as a trendsetter that influences the talks at other firms. In the upcoming negotiations, the Toyota union reportedly plans to demand a ¥3,000 monthly raise in the base pay scale — half the level sought last year and even less than the ¥4,000 raise that they eventually agreed on with management. While Toyota itself continues to enjoy record profits, the union reportedly tamed its demands in view of the widening disparity with workers in other firms in the Toyota group, including smaller subsidiaries and affiliates that haven’t benefited as much from the current economic climate.
According to a tally by the Health, Labor and Welfare Ministry, wage hikes at major companies averaged more than 2 percent for two years in a row to 2015. However, a large portion of that hike reflected seniority-based annual raises and the hike in the pay scale itself was limited. The hikes at small and medium-size businesses remain even lower.
Despite what were touted as the sharpest raises at big companies in years, the average household income has registered net losses for much of the past three years as prices have risen faster than wages. If the administration is calling for wage hikes as a means to boost consumer spending, the raises need to spread to employees of small and medium-size companies, which together account for 70 percent of Japan’s employed workforce, and to people engaged in irregular forms of employment, such as part time and term contracts, who are typically paid much less than regular full-time workers. These people, who are mostly out of the loop when it comes to the annual wage talks, have come to account for 40 percent of the nation’s payroll. The government, businesses and labor unions should refocus their policies on improving conditions for them.
Abe reportedly plans to refer to the need to achieve the “same work, same pay” rules irrespective of employment status in his policy speech to the Diet this week. That should not end up merely as a lip service ahead of the Upper House election this summer to show that his administration is ready to improve labor conditions. Last year, his Liberal Democratic Party, working with some in the opposition camp, enacted an amended version of an opposition-submitted bill to achieve the same work, same pay principle by watering down the requirements for employers and legislative action. Whether the prime minister is now more serious about making it happen remains to be seen.