Spring Labor Offensive: Support for SMEs Crucial to Driving the Economy

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The 2025 spring labor offensive known as shunto has begun. Meanwhile, prices continue to rise for a wide range of items. That makes wage increases that exceed inflation essential to achieving a self-sustaining economic recovery. Without it, consumers will not expand personal consumption.

We urge labor and management to approach this spring's negotiations with a sense of urgency. Their outcome will determine the future of the Japanese economy.

Some CEOs of major companies have already announced plans to raise wages by a hefty amount at the level of 2024's rise. However, to widely implement wage increases that exceed inflation, an environment is needed in which small and medium-sized enterprises (SMEs) can also continue to raise wages. These businesses account for 70% of employment in Japan.

Helping to Lift SMEs

It is only natural that SMEs should strive to improve their performance through self-reliant efforts. For example, improving productivity and securing the funds needed to raise wages. At the same time, SMEs must appropriately pass on increased costs, such as those for raw materials and labor, in their transaction prices.

Labor and management agree that wage hikes at smaller companies are critical. Without the participation of this sector, Japan cannot maintain the high level of wage increases that have continued over the past two years.

*Rengo Chairperson Tomoko Yoshino (left) and others hold a press conference in Chiyoda Ward, Tokyo, on December 19, 2024.*

Spring labor offensive headline wage targets for Rengo, the trade union confederation, are for increases similar to 2024, namely "5% or more." However, it has decided to raise the target to "6% or more" for SMEs.

Behind this is Rengo's 2024 experience. Labor unions affiliated with the union achieved a hefty average wage increase of 5.10% in the 2024 spring wage negotiations. That was the highest wage hike in 33 years. However, small and medium-sized companies only managed a 4.45% increase, widening the wage gap with large companies.

Breaking Deflation by Changing Mindsets

The Keidanren, the Japan Business Federation, has announced its 2025 guidelines for employers. Those urge member companies to change their mindsets. It contends that large companies and companies placing orders need to undertake a dramatic paradigm shift. Not only should they support passing on appropriate price increases, but also proactively support the efforts of SMEs and strengthen cooperation with them.

The central government has made promoting wage increases by small and medium-sized enterprises a priority issue. In the current Diet session, it is submitting a bill to amend the Subcontract Act to encourage price transfers. To increase the effectiveness of price transfers, the government will likely need to strengthen its monitoring of the business transaction environment.

Taking inflation into account, real wages increased for the first time in 27 months in June 2024. However, they started declining again in August. Unless this situation is improved, a virtuous cycle of growth and distribution cannot materialize.

Widespread embracing of wage increases is a prerequisite for breaking away from the deflationary mindset that has persisted for so many years. We should view this spring's labor offensive as an opportunity to achieve this goal.