Japanese companies offer the lowest wage increases in 8 years as Covid bites

An employee assembles a small sushi-making machine at a factory in Kawashima in 2017 (File pic)

TOKYO: Japanese companies offer the lowest wage increases in eight years as business talks wind down on Wednesday, in a sign that the Covid-19 pandemic is putting an end to the benefits that stimulus policies brought to former Prime Minister Shinzo Abe.

Over the past seven years, major companies have offered wage increases of 2% or more in the annual “shunto” spring wage negotiations, a reference to the government’s efforts to stem two decades of grinding deflation.

Abe’s policies, dubbed “Abenomics,” target wages among other reforms to help revive the economy.

The country’s chronic labor shortage due to a rapidly aging population has also prompted companies to offer higher salaries to attract talent in recent years.

Analysts say the coronavirus pandemic has dealt a special blow to service sector companies such as restaurants, transportation, hotels, entertainment and tourism, forcing them to prioritize job security over annual increases in basic wages.

The momentum towards higher wages has weakened. “It turns out that it is unequal between industries and companies,” said Hisashi Yamada, chief economist at the Japan Research Institute.

“Wage growth will not lift prices even though they are still above levels that may cause deflationary fears.”

Annual wage talks are a measure of corporate power and household purchasing power, both of which are essential to generating sustainable economic growth and achieving the central bank’s inflation target of 2%.

Many companies and trade unions have reduced or abandoned base wage increases A major factor in determining the strength or absence of wage gains for full-time employees That comes on top of seniority-based wage increases.

Toyota Motor Corporation, previously seen as a leader in wage talks, offered a salary increase of 9200 yen a month, up from the previous year’s offer of 8,600 yen, but did not say whether the base salary had increased or not.

Nissan Motor Co. offered a wage increase of 7,000 yen, unchanged from last year.

Local media reported that Fujitsu Ltd. and other major electrical machinery manufacturers have agreed with unions to keep basic wage increases largely unchanged from the previous year’s 1,000 yen a month.

In contrast, trade unions in industries hard hit by the epidemic, such as airlines, have halted demands for basic wage increases. This has led to varying transformation outcomes across industries, between those affected and those not affected by the epidemic.

Some firms are moving away from comprehensive wage increases towards a more diversified approach to wages. Many of them rely on merit-based wages, rather than seniority-oriented wages, to attract young talent.

This move coincides with structural changes in the Japanese labor market. About 40% of workers consist of part-time employees and contract workers, twice the percentage seen in 1990, and many of them are not affiliated with trade unions.

“In recent years, unions have had a distinct advantage over companies as they faced a labor crisis,” said Yoshiki Shinki, chief economist at the Dai Ichi Institute of Life Research.

“The epidemic has changed all that, forcing employers and trade unions to prioritize job security over wage increases.”

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