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The annual wage negotiations have started amid difficult economic conditions, including a high unemployment rate topping 5 percent and a prevailing fear of a second recessionary dip. The Japanese economy is in such bad shape that the Japanese Trade Union Confederation (Rengo), Japan’s largest labor organization, has given up seeking an increase in basic pay. Instead, Rengo will concentrate on securing a periodic wage increase based on age or years of service. A guideline for wage talks issued by the Japan Business Federation (Nippon Keidanren), Japan’s strongest business lobby, attaches importance to firm control of personnel costs and calls not only for the rejection a base-pay raise, but also for decreases in periodic raises in pay and allowances.

In a meeting with Mr. Fujio Mitarai, chairman of Nippon Keidanren, Rengo chairman Nobuaki Koga said that the system of periodic pay raises, developed over many years, serves as a foundation of trust in the labor-management relationship.

Given the nation’s poor economic prospects, it is very likely that management will be tempted to increase profits by cutting personnel costs. But management should pay attention to the fact that workers’ disposable income has been declining in recent years, leading to weak domestic demand at a time when exports are sluggish.

It is estimated that supply exceeds demand by ¥35 trillion, or 7 percent of gross domestic product. Management’s refusal to increase wages will lead workers to further tighten their purse strings, thus exacerbating the deflationary trend. It should consider sharing company profits and internal reserves with workers to improve their morale, which is, after all, a critical contributor to Japan’s competitiveness and innovation.

Both labor and management also should try to improve the conditions of irregular workers, who account for one-third of Japan’s labor force. For the first time, Rengo is calling for the betterment of irregular workers’ conditions. Labor unions should be ready to sacrifice some of regular workers’ benefits if such a move is necessary to help irregular workers.

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