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Although many companies have agreed to make considerable wage increases in this year’s shunto spring negotiations, this is only the halfway point on the path to overcoming high prices.
The government should rethink the measures it has been taking to spread the wave of wage increases to small and midsize enterprises and to ensure the high level of wage increases will actually improve people’s lives.
In the shunto negotiations, major companies in the automobile, electronics and other industries have responded across the board to their unions’ demands for higher wages. Toyota Motor Corp. met the full amount demanded for the fifth consecutive year, and a wide range of manufacturing companies agreed to high levels of wage increases.
Hitachi, Ltd. offered to raise base pay with a pay-scale increase of ¥17,000 per month, matching the full amount demanded. Mitsubishi Chemical Corp. responded with an amount exceeding the union’s demand.
Continued high wage increases are essential for Japan’s economy to break out of its prolonged stagnation, which has been described as the “lost 30 years,” and transform itself into a growth-oriented economy. Keidanren (Japan Business Federation) has positioned this year as a “watershed” for locking in the wage increase momentum.
It is praiseworthy that, as in the shunto negotiations in 2023 and 2024, major manufacturers and other firms noticeably offered to meet the full amount demanded.
However, looking at the current situation, real wages, which reflect the impact of prices, have been on a downward trend for three consecutive years through 2024.
If this trend continues, households will remain thrifty and personal consumption will remain weak, posing a risk that high prices will not be overcome. It must not be forgotten that the current situation is only part of the route toward achieving a virtuous economic cycle.
During the long period of deflation, Japanese companies aimed to secure profits by reducing labor costs. But in a society with a serious labor shortage, it is necessary to shift to a mindset in which investing in people is the foundation for growth.
Another major challenge will be to spread wage increases to small and midsize enterprises, which account for about 70% of all employment in Japan. This is necessary because the gap in wage increases between smaller and large companies is widening.
The shunto negotiations for small and midsize enterprises will begin in earnest from now. It is hoped that large companies will give consideration to smaller firms so they can pass on increased costs of labor and raw materials through their transaction prices.
The government is aiming to pass an amendment to the subcontract law at the current Diet session. It is also important to strengthen monitoring to ensure that small and midsize companies can pass on increased costs through their prices.
Although this is the third year in which major companies have agreed to high-level wage increases, the public has long suffered from high prices. The government is required not only to call on companies to raise wages, but also to consider policies necessary to improve people’s lives, including measures to deal with high prices.
It is also vital for companies to actively make capital investments in Japan to boost productivity. Domestic investment by Japanese companies has been nearly flat. Spending on research and development also has not grown in comparison with trends in other major developed countries. Tax and fiscal measures to encourage domestic investment as well as research and development should be reconsidered.
