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Corporate restructuring in Japan is creating inexorable pressure to implement wage restraints. This is evident in increasing efforts to change the traditional seniority-based wage system. Even more significant, these moves are apparent even among companies that are doing well despite the prolonged economic slump. For example, the union at Toyota Motor Co. has given up wage demands for two consecutive years. Canon Inc. has scrapped a pay scale that guarantees an automatic increase in base pay every year.

This clearly shows that the focus of labor-management bargaining has shifted away from wage increases to job security. In fact, this year’s “shunto” spring labor offensive marks an end to the “lock-step” wage negotiations of the past, in which wages rose across the board under the aegis of pace-setting unions. In recent years, many companies have tried to hold down labor costs by cutting bonuses and other one-time payments. Now, however, they are moving to readjust the pay system itself.

These developments partly reflect external factors, particularly the sweeping impact of economic globalization — which has accelerated the cross-border movement of people, money and goods — and the progress of structural deflation in the global economy. Japan’s high wage levels, combined with domestic deflation, are putting downward pressure on wages across a broad spectrum of industries. An international wage comparison of selected countries, based on data from the International Labor Organization, shows Japan ahead of other countries. If the wage level for Japan is figured at 100 (calculated at the exchange rate of 121 yen to the dollar), it is 93 for the United States, 76 for Germany, 85 for Britain, 44 for South Korea and 3 for China. In terms of purchasing power parity, which factors in price levels, the disparities between Japan and these countries become smaller. Still, Japan’s wage levels are among the highest in the world, as is its per capita income.

These realities demonstrate why the argument for continuous wage increases is no longer tenable. It is obvious that Japanese companies, even with their technological prowess and relatively high productivity, cannot win as global price competition intensifies — unless they rein in payroll costs.

This explains why an increasing number of Japanese businesses have moved production to China, where the average wage level is only one-thirtieth of that in Japan. At the same time, the globalization of markets has reduced price and wage gaps between developing and developed countries. In the U.S., for instance, wages dropped in the 1990s even as the economy enjoyed an unprecedented boom. Paychecks increased only in internationally competitive sectors, such as information technology and finance.

In Japan’s case, post-bubble problems, particularly plummeting asset prices, have affected corporate balance sheets, forcing companies to reduce personnel expenses and other fixed costs. To that end, they have cut jobs and bonuses. By international standards, however, labor costs are still considerably higher than in other major industrialized countries. By contrast, profitability remains low, as does worker productivity.

Stepped-up moves to cancel annual increases in base pay — raises built into the pay scale — suggest that the next step will be cutting base pay itself. Understandably, unions are dead set against this. Considering, however, that job cuts are likely to have greater effects on consumer spending than pay cuts, they will need to maintain, at least for the time being, their declared position that protecting job security is their top priority.

Under the circumstances, one important task for unions is to try to reduce the wage gaps between big-business and small-business employees, between male and female workers, and between full-time and part-time employees. Improving the lot of part-timers requires institutional reform, such as revising the social insurance system. To that end, labor groups need to promote dialogue with the government.

It is also important to introduce new systems for evaluating employees on the basis of performance rather than seniority. Of course, such merit systems must be worked out in ways that do not damage employee morale. A system that emphasizes performance too much could disrupt teamwork. To devise the best system possible, labor and management need to cooperate rather than confront each other.

In the U.S., a growing view puts a premium on the role of wages as a “tool of communication,” not as a “tool of management.” The idea is that each company should establish a wage system tailored to its corporate culture or its characteristics. From this point of view as well, the shunto formula of collective bargaining has outlived its usefulness.

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