Wage Fever to Invigorate Japan’s Economy

19 March, 2015 –

Japan Economy

Manufacturing Sector Pay Raises

Major Japanese manufacturers lined up Wednesday to give their employees bigger pay raises starting in April, a move that Prime Minister Shinzo Abe hopes will rejuvenate his campaign to boost growth and defeat deflation. But the diverging fortunes of Japan’s big and small firms suggest that Mr. Abe may have more work to make wage growth spread.

In an unusual step for a free-market economy, Mr. Abe has directly applied pressure on corporate executives to raise wages in recent months, both in a formal meeting at his office and on social occasions such as golf outings. Tokyo sees faster wage growth as crucial to revive consumer spending, which stagnated after the national sales tax rose to 8% in April 2014 from 5%.

In a sign that Mr. Abe’s cajoling has borne fruit, Toyota Motor Corp., the world’s largest car company by sales, said it would raise the monthly base pay of its Japan-based workers by 1.1% starting next month. With increases in seniority-based pay, workers will receive an average pay rise of 3.2% in the coming year, excluding bonuses. Nissan Motor Corp. said it would raise its base wage by 1.4%, or ¥5,000 ($41) a month, part of a 3.0% rise in average monthly compensation, the biggest jump since 2004. Other major companies such as Hitachi Ltd. and Panasonic Corp. also agreed to offer larger pay raises than last year. The announcements followed weeks of “shunto” spring wage negotiations between management and labor, a tradition since the 1950s.

Mr. Abe’s top spokesman, Yoshihide Suga, said corporate executives had responded to the prime minister’s push, and he praised the “powerful move toward higher wages.” “It’s like we all caught a fever” to raise wages, said Osamu Masuko, the chief executive officer of Mitsubishi Motors Corp., which plans to lift its monthly base pay for workers by 0.7%. “It’s a big pain, but companies are trying to do what they can to invigorate the Japanese economy…The question is, are the employees really going to spend that money?”

Officials at the Bank of Japan see wage growth as the key to achieving their promise of 2% inflation by next year. The rate of inflation fell to 0.2% in January, the lowest in more than a year and a half, on falling oil prices and lackluster domestic demand. Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, said the combination of higher wages at big companies, lower gasoline costs and surging Tokyo stock prices would help kick-start consumption later this year. “Japan’s economy is steadily climbing the steps toward the end of deflation,” he said.

Others were more cautious. Toyota and other big companies also lifted wages last year—albeit not as much—and the effect on the economy as a whole was limited because some 70% of Japan’s workers are employed in small and midsize enterprises, according to government figures. By some estimates, the workers affected by the spring wage talks account for less than a fifth of Japan’s labor force. In 2013, the average wage growth rate was around 1.5% for companies surveyed by the labor ministry, regardless of their size. But in 2014, the rate was 1.9% at companies with 5,000 or more employees and 1.6% for companies with 100 to 299 employees.

Even among big companies, retailers suffering from weak consumption and importers facing higher costs because of the weak yen aren’t inclined to follow Toyota’s lead. Convenience-store operator Family Mart Co. said it would skip base salary increases this year. “Don’t expect that wage figures from nonmanufacturers will look like those” from manufacturers, said Takeshi Minami, chief economist at Norinchukin Research Institute.

In a February survey of 8,434 small companies by research firm Teikoku Databank, about 38% of respondents said they planned to raise base wages this year, slightly more than a year earlier. Tsuyoshi Kubota, a researcher at Teikoku Databank, said a tightening labor market and wage increases by bigger firms have left many small companies no choice but to raise their own wages, although it will hit their bottom lines.

(Source – “The Wall Street Journal“, Pic – Japan Manufacturing / “The Australian“)


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