For the fourth straight year, the administration is urging business leaders to raise wages for their workers in the annual spring pay negotiations with labor unions, with Prime Minister Shinzo Abe specifically calling for wage hikes of “at least the same level as last spring.” The Japanese Trade Union Confederation (Rengo), the nation’s largest umbrella labor organization, meanwhile adopted a policy of seeking a 4 percent raise — including a 2 percent hike in workers’ base pay scale.
This now familiar scene is being re-enacted even as consumer spending and prices have fallen for several months in a row, threatening the Abe administration’s bid to bust deflation. Companies are more wary than in previous years against wage hikes, citing declining profits due to the yen’s upturn and cloudy prospects for the global economy. But significant wage increases for a broad spectrum of workers remain crucial to a sustained recovery in personal consumption, which accounts for 60 percent of Japan’s gross domestic product. The prodding from the government aside, profitable companies need to do their own share of the work to boost the fragile growth of the domestic economy.
The employment situation continues to improve. The jobless rate in October remained at 3.0 percent while the ratio of job offers to job seekers rose to 1.40 — the highest since August 1991. Last month, that ratio was 1 or higher in all 47 prefectures. While job increases in the initial years of Abenomics mainly involved low-paying irregular positions, the number of full-time regular corporate employees rose on a year-on-year basis in 2015 for the first time since 2007 — before the global recession. Last year, the gain in the number of regular employees topped that of irregular workers for the first time in 21 years.
Still, consumer spending remains weak. Per-household spending in October fell 0.4 percent from a year ago for the eighth consecutive month of decline. The consumer price index similarly declined 0.4 percent for the eighth straight monthly fall.
While keeping the pressure on businesses for more wage hikes, Abe has touted the pay raises under his watch as the sharpest in years. Still, people’s wage income continued to decline in the years up to 2015 on a net basis as prices rose faster than the pay raises. While net wage income has been rising in recent months, that has been attributed to the fall in prices. It seems obvious that significant wage hikes and the resulting increase in disposable income of households will be essential for consumer spending to pick up on a sustained basis.
The business leaders are on guard. Keidanren (Japan Business Federation) Chairman Sadayuki Sakakibara says there will be “companies that can (raise the pay scale of their workers) and those that cannot.” Major export-oriented companies, which benefited significantly from the weak yen in the initial three years of Abenomics, expect their profits to fall due to the yen’s upturn and the slowdown in emerging economies. Firms listed on the first section of the Tokyo Stock Exchange are forecasting that their operating profits in the year to next March will decline significantly from the previous year. Among the companies hit hardest by the worsening business environment are automakers, which set the trend in the annual wage talks each spring.
The hesitancy of management to answer the government’s call positively may be understandable. Companies make their own decisions on wages for their employees based on their performance and financial conditions, not on the urging of the government. The companies should indeed look hard at their own finances to examine whether and how much they can afford to raise their workers’ wages.
Many of the companies that posted record earnings in recent years have accumulated retained earnings. According to the Finance Ministry, the retained earnings of Japanese firms totaled ¥365 trillion during the April-June quarter, a 6.5 percent increase from a year ago. The companies are not necessarily hoarding this money; they may be setting it aside to pay for future investment and other purposes. But they can also consider investing the money in human resources by sharing the earnings with their workers through higher wages. That could lead to improving the firms’ business environment if the wage increases prompt the workers to spend more.
Finance Ministry data also show that the combined net profits of Japanese firms in fiscal 2015 hit a record ¥41.8 trillion, a 49 percent increase compared with fiscal 2006 (before the so-called Lehman shock of 2008). However, the total wages paid to their employees including bonuses gained a mere 0.9 percent over the same period to ¥150.6 trillion. Various factors explain the negligible rise in the total wage cost, including the mass retirement of postwar baby boomers, an increase in the ranks of low-paying irregular workers and businesses’ tendency in recent years to reflect changes in their earnings in bonus payments instead of monthly salaries.
Companies’ manpower costs change for a variety of reasons. Since there are always gaps in workers’ wage gains and increases in companies’ profits, it may be unreasonable to deny wage hikes on grounds of declining profits and a cloudy business environment. Businesses that can afford to should raise their wages, instead of being tied to the across-industries trend.
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