Tokyo The era of wage stagnation is over in Japan, at least for the employees of Japanese fashion giant Fast Retailing. The third largest fashion group in the world, known for its Uniqlo brand, has just increased the salaries of its domestic staff by up to 40 percent. On average it is 20 percent.
“We are increasing salaries so much this time because we need to attract talented employees in order to achieve our future growth target,” explains Miyuki Isozaki, Head of Human Resources at Fast Retailing, in an interview with Handelsblatt.
The company’s founder, Tadashi Yanai, aims to triple his company’s global sales to 10 trillion yen. For this he needs committed employees who are willing to work globally. But finding them is becoming increasingly difficult in Japan.
Because Japan renounces mass immigration, the population has been declining since 2009 – and at an ever faster rate. It is now shrinking by almost 600,000 people a year.
Still, real wages in Asia’s oldest industrialized nation have stagnated at an average of $40,000 while others have risen. Even South Koreans are now earning more. Fast retailing is now becoming the forerunner of a broad wage turnaround. In the Japanese government, this is linked to the hope that inflation, unlike in Germany, will not lead to drastic and ideally no real wage losses.
Japan’s hope: fewer residents, more salary
In this year’s collective bargaining, wages rose by an unexpectedly high average of 3.7 percent per year of service, including bonuses, according to an evaluation of the spring fight (Shunto) by the trade union center Rengo.
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That was about twice as much as before and corresponded to the inflation rate. More importantly, companies also raised base wages by 2.2 percent. Experts see this as a turnaround and a chance for higher wage growth across the board over the course of the decade. Fast Retailing and other corporations show how dynamic the development could be.
The continued decline in Japan’s population gives workers and economists hope that this success will not remain an isolated case. “Serious labor shortages will increase pressure for wage increases,” says Shinichi Nishioka, an economist at the Japan Research Institute.
The government and the central bank are pushing for salary increases
Nicholas Smith, strategist at CLSA in Tokyo, says: “Every industry in Japan is already suffering from labor shortages.” The growing problem will continue to drive wage increases and corporate restructuring.
Fast Retailing pays a lot of money to keep employees.
(Photo: Martin Kolling)
There are important political, demographic and business trends that speak in favor of a sustainable wage turnaround. Politicians and the central bank have long been urging the management of large corporations not only to let investors participate in the high profits with higher dividends and share buybacks. The Bank of Japan encouraged unions to be less tame and to insist on significantly more money.
“While most central banks want high inflation to fall rather than drive wage increases, the Bank of Japan takes a different position,” said Stefan Angrick, economist at Moody’s Analytics in Japan. “She is hoping that inflation will influence wages and prices.” The government and the central bank want to tear the country out of almost 30 years of deflation and achieve moderate inflation in which salary increases maintain purchasing power.
Statistically speaking, this is still not working, since many economically weak small and medium-sized companies are still hesitating. In recent months, real wages have even fallen again at the national level.
Labor shortage replaces worker representation
The most important factor behind the hope for rising wages is growing demographic pressure. So far, companies have been able to more than compensate for the shrinking working-age population by integrating women and pensioners.
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But there is not much potential left in these two population groups. When it comes to female employment, Japan tends to be at the upper end of the scale among industrialized nations. In addition, every fourth person over the age of 65 is already working.
Forward-looking large corporations are already trying to increase their attractiveness as employers through long-term wage increase plans. For example, the world’s largest glassmaker, AGC, intends to increase wages by 6.4 percent in June, with base wages set to increase by 3.4 percent.
CEO Yoshinori Hirai promises to continue this wage policy until 2030. His reasoning is: “In order for the company to grow, wages must continue to rise from next year.”
Compared to other companies, a lot of people come to us because they believe we can grow in the next ten years. Tetsu Yamaguchi, Head of Human Resources at Fast Retailing
Companies are increasingly in global competition for workers. Fast Retailing in particular promotes international career paths, which means that many foreigners also work in Japan. As a result, the growing wage gap between Japan and other major markets has become an increasing concern, Isozaki explains. Therefore, the board decided without any union pressure to adjust the salaries in Japan.
Japan must finance wage turnaround with reforms
Profits shouldn’t go down. The Uniqlo parent company has an advantage: Unlike many companies, it does not pay according to the seniority principle, according to which salaries in Japan usually increase with each year of service up to the age of 55. Instead, the workforce is now paid based on performance and position. Other companies are aiming for similar models.
In addition, the fashion company managed to significantly increase its productivity. Japan’s productivity is well below the OECD average. This is mainly due to the service sector.
Fast Retailing has long relied on advanced IT solutions and automation. This strategy is now paying off in the demographic crisis. “Compared to other large companies, a lot of people come to us because they believe that we can grow in the next ten years,” says Yamaguchi, who is also the company’s head of human resources. The quality of the applicants has even improved.
>> Read here: Exclusive data shows that every second company in Germany has significantly increased its personnel expenses. This is especially the case for smaller companies.
Examples like this are putting pressure on the rest of Japanese companies to address their reform backlog. Otherwise they may not be able to keep up in the talent competition.
The growing inflation expectations in Japan could help them. The central bank notes that more and more companies are daring to do something they haven’t dared for a long time: they are passing on increased costs to their customers. In the interest of the government.
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