January 26, 2023
TOKYO – Amid rapidly rising prices, this year’s shunto spring wage negotiations are getting into full swing. Both labor and management agree on the need for wage hikes, but inflation is affecting workers and companies alike.
The level of wage increases demanded by labor unions so far goes beyond what was sought last year, but it is unclear how far wage hikes can keep up with rising prices. The higher costs of raw materials have also hurt the performance of many small and medium-sized enterprises (SMEs).
“Under the past deflationary economy that continued for nearly 30 years, I don’t remember having labor demand so strongly to take price trends into account in wage negotiations,” Masakazu Tokura, chairman of Keidanren (Japan Business Federation), said at the opening of a labor-management forum held by the group in Tokyo on Tuesday.
Price increases have shown no signs of abating. In December, the core consumer price index, excluding volatile fresh food prices, grew by 4% nationwide from the corresponding month a year earlier, the highest year-on-year growth in 41 years.
Labor and management are in accord on the course of action to increase wages against the backdrop of price increases in a wide range of items due to soaring energy prices and the yen’s decline. The focus of the negotiations this year is whether wage hikes will exceed inflation.
Labor unions are also making more aggressive demands.
The Japanese Electrical Electronic & Information Union, which is made up of labor unions of electronics manufacturers, plans to increase its unified demand for a raise in basic wages by at least ¥7,000 a month, more than double the level of at least ¥3,000 sought last year.
The Federation of All Nissan and General Workers Unions is seeking more than ¥6,000 per month in wage raises or an equivalent increase in base pay “to support household finances that have been strained by price increases,” as an official connected to the matter put it. This is six times higher than the amount demanded last year.
Some companies have already spelled out their plans to raise wages at levels exceeding inflation.
Suntory Holdings Ltd., a leading beverage company, is considering a 6% wage increase on a monthly income basis, including an increase in base pay, to support the livelihood of its employees.
Nippon Life Insurance Co. has announced plans to raise wages by an average of 7% on an annual income basis for its approximately 50,000 sales staff.
Since 2014, the annual wage negotiations have been called the “government-led shunto,” with the central government acting as the main instigator. This time, however, the environment has dramatically changed, with both labor and management intensifying their calls for avoiding using that description.
“It is abnormal for the government to be involved in labor-management relations at private companies,” said a senior labor union official of a leading manufacturer.
Many SMEs signal no raises coming
Despite a flurry of announcements of wage hikes forthcoming, there remains on the part of management a firmly rooted, cautious attitude.
“We understand the need for wage hikes, but we also want people to understand that we are still recovering from the COVID-19 pandemic,” said an official of a leading transportation company.
For wage hikes above inflation, it remains to be seen if and how far they will prevail among companies in those sectors hit hardest by the pandemic, including retail, transportation, and tourism.
The circumstances in which SMEs find themselves are even harsher.
Tokyo-based Johnan Shinkin Bank surveyed approximately 700 SMEs in Tokyo and Kanagawa Prefecture this month and found that more than 70% of them have no plans to raise wages. About 80% of them said that soaring prices of raw materials have hurt their earnings, and there is little room for them to raise wages.
The president of an automotive parts manufacturer in Aichi Prefecture with approximately 100 employees said: “If we negotiate on prices with customers, the deals will go to our rivals. We want to raise wages to secure human resources, but we cannot afford it.”
For wage increases to truly spread, they must also disseminate across SMEs, which employ nearly 70% of the country’s workforce. This month, three leading economic organizations, including Keidanren, have called for allowing the rising costs to be appropriately passed on in business transactions between SMEs and large ones, so that smaller firms can secure funds to raise wages, but it will take time for this to show its effects.
“The business environment differs from one company to another, and it is no longer an era in which companies raise wages by following the leader,” said Taro Saito, an executive research fellow at NLI Research Institute. “Those companies that are strong enough should raise their wages first, thus turning the overall economic situation around.”
It is also essential to improve the treatment of non-regular workers, who account for about 40% of the total workforce in Japan.
Rengo, the Japanese Trade Union Confederation, is calling for the introduction of pay raise rules in raising wages for fixed-term contract employees. Keidanren, for its part, is also calling on its member companies to promote the conversion of non-regular workers into regular employees.
An economist has also pointed out, “To raise the wages of non-unionized workers, it is indispensable to raise the floor for the Japanese economy as a whole.”