Wage hikes by major car and electronics makers that have wrapped up this year’s negotiations with their labor unions were generally higher than a year ago — an outcome that is hoped to bode well for ongoing talks in other industries and at small and medium-size firms. Given that big listed companies are expecting to earn record profits, however, the raises do not appear robust enough to stimulate consumer spending — whose recovery remains sluggish and weak even as Japan’s economy is on an extended growth track. Companies should share more of their earnings with employees as a strategic investment in manpower that supports their future business.

According to a tally by the Japanese Trade Union Confederation (Rengo), wage hikes — increases in the workers’ base pay scale and seniority-based automatic raises combined — offered to 675 unions that have concluded their talks with management came to an average of 2.16 percent, slightly higher than the level at this stage in the wage negotiations last year. Some companies reportedly offered a 3 percent hike in their employees’ total annual income, including bonuses and other allowances — matching the request made to big business leaders by the administration of Prime Minister Shinzo Abe ahead of the shuntō wage talks season.

The nation’s October-December gross domestic product expanded an annualized 1.6 percent from the preceding three months, marking the eighth consecutive quarterly increase, the longest growth streak since the bubble boom of the late 1980s. For two years in a row, listed major companies are forecast to earn record profits, with their cash reserves continuing to expand. The big firms are apparently in better condition to offer higher raises to their workers.

But as the economy remains in an extended growth pattern, mainly on the strength of brisk overseas demand, recovery in personal consumption — which accounts for 60 percent of Japan’s GDP — continues to be weak and uneven as growth in wages stagnates. Average per household consumption in 2017 fell 0.2 percent from the previous year on an inflation-adjusted basis for the fourth consecutive annual decline. The average worker’s monthly wage income last year dropped 0.2 percent in real terms as prices rose faster than wages. According to the unions, the hikes in workers’ base pay scale at the companies that have so far completed negotiations have come to an average of 0.77 percent — even lower than the 0.9 percent rise in consumer prices (not including fresh food) in January. Consumer prices rose 13 months in a row to January — due chiefly to increases in energy costs — and people might be left with a net wage decline again this year if the pay raises are insufficient.

Economic growth can remain shaky as long as it relies heavily on export demand, which is vulnerable to possible turbulence in the global economy. Japan needs domestic demand-driven growth, and the key to that will be a sustained recovery in consumer spending. For that to happen, workers’ wages must rise more significantly in ways that boost their purchasing power.

Businesses do not determine their wage policy for the purpose of boosting the national economy. Those in management make decisions on workers’ wages as they seek to improve their individual company’s performance and comparatively weigh the firm’s other expenses, such as those in capital investment, and funding needs. Many companies hesitate to offer significant increases in their workers’ base pay because they are wary of a long-term increases in fixed manpower costs. But as the nation faces an increasingly tight labor supply shortage amid an aging and shrinking population, businesses should consider wage hikes as investment to secure the manpower they need under better conditions, thus contributing to companies’ improved performance.

Labor’s share of corporate profit is declining — and should rise. But merely calling out to companies for a uniform hike in wages will not work, because such an investment decision rests with each individual company based on its own conditions and business strategy. High-performing companies and growing sectors should offer higher pay to attract better workers, which should in turn lead to greater mobility in the labor market. What stands in the way of more significant wage hikes being offered at Japanese firms making hefty profits needs to be explored.

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