His country has been suffering from deflation for decades – but the companies are making profits every year.
(Photo: imago images/ZUMA Wire)
In his New Year’s address to Japan’s entrepreneurs, Prime Minister Fumio Kishida took over the work of the union bosses. The conservative politician politely but firmly called on corporate executives to increase salaries by more than three percent and thus help Japan’s growth.
At that time, the company representatives applauded the conservative head of government. The trade union umbrella organization Rengo also welcomed the political intervention in collective bargaining autonomy. “Kishida’s request helps create a positive environment for wage increases,” Akira Nidaira, Rengo’s chief planning officer, told Handelsblatt. But now companies and their company unions have to show whether they really support one of the most important pillars of Kishida’s economic strategy.
In the meantime, the “Shunto” is in full swing, the annual “spring battle” in which the companies and their company unions negotiate the annual salary increases. For Kishida, there is already a lot at stake at the beginning of his still young term in office.
Before the general elections in November 2021, he promised voters that he wanted to create a “new capitalism”. By this Kishida understands an economy that strengthens the thinning middle class, the shrinking regions and the weakening democracy.
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Large wage increases should fulfill two economic policy goals: The Liberal Democratic Party (LDP), which has been in power almost all the time, not only wants to free the country from deflation with a moderate wage-price spiral and lead to two percent inflation. Kishida also wants to lead the economy permanently onto a growth path through higher wages.
Dissatisfaction with politics is high
In general, the Prime Minister’s goal met with broad approval. Because even in Japan’s leadership elite there is a feeling of crisis. Even if the country seems stable under the LDP, dissatisfaction with politics is high.
In 2021, just 56 percent of eligible voters went to the polls, the third-lowest turnout in Japan’s post-war history. And one reason for this, in Kishida’s eyes, is that Japan’s employees and the economy have been left behind globally.
According to statistics from the OECD, in which 38 traditional industrialized countries are organized, Japan was the only mature economic nation in which real wages not only rose more slowly than productivity between 1995 and 2017, but actually fell by one percent. But the big question is how Japan can sustain a wage turnaround.
In the past 20 years, the unions have failed to create an environment for strong wage demands, reports Rengo representative Nidaira. Because the security of jobs for their members, mostly permanent employees, was more important than more money.
It was therefore easy for management to limit salary increases for the shrinking core workforce to two percent, despite record profits in recent years.
But the pressure on capital and labor is growing. Japan’s inflation rate of less than one percent is officially still significantly lower than in Europe and the USA. But now the Japanese have to pay more for housing and food again. At the same time, the labor shortage is growing with the ever faster shrinking population.
Corporate profits continue to rise
And the corporations are running out of counterarguments. For example, Nicholas Smith, Japan economist at CLSA, predicts that the profits of listed companies will reach a new record high in the 2021 fiscal year, which ends at the end of March.
However, there is still little movement to be seen. The Keidanren business association has spoken out in principle in favor of stronger wage increases, but is leaving the details entirely up to companies. And the devils are in the details of the labor market.
One problem is that the proportion of contract and part-time workers remains at 37 percent. And a contract worker earns only two-thirds the salary of a permanent employee and often misses out on pay increases.
Another problem is the 60 million employees in small and medium-sized companies, who earn significantly less than those in corporations, explains Rengo representative Nidaira. “So it’s important to raise wages for a broader spectrum of workers.” Not just for the core workforce.
The government is trying to encourage this with tax breaks for companies, for example, which significantly increase salaries. But for Shigeki Morinobu, director of the Tokyo Foundation for Policy Research, the idea suffers from an unsolved fundamental problem. “Japan urgently needs to increase labor productivity to increase wages.”
Despite the increases in recent years, Japan ranks 23rd in the OECD’s productivity ranking. Many economists are therefore calling for structural reforms and consistent digitization to create scope for higher salaries. But Kishida does not provide both for the former government advisor and economist Haruo Shimada: “Kishida talks nicely, but lacks substance.” And this for some time to come: The head of government has commissioned a council of experts to formulate a concrete reform policy up to the upper house elections in the summer to develop for its goals.
More: After two years of pandemic: Japan opens borders for business travelers.