The Osaka Kangyoten 2024 industrial exhibition drew approximately 360 small and medium-sized enterprises from Osaka Prefecture.
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The run-up to the 2025 spring labor negotiations (shunto) has begun. Rengo (the Japan Trade Union Confederation) has announced its intention to set a "6% or more" target for increasing wages at small and medium-sized enterprises (SMEs).
The overall wage hike target, including at large companies, will remain at "5% or more." That is the same level as in 2024. Both targets will be finalized at a meeting of Rengo's central executive committee on November 28.
The labor federation plans to set wage increase targets for SMEs at 1% point higher than the overall target. Their reason is due to the widening wage gap between SMEs and large enterprises.
Building on 2024's Wage Gains
During the 2024 spring wage offensive, labor unions affiliated with Rengo achieved an average of 5.10% raise. It was the highest in 33 years. Nonetheless, for SMEs with fewer than 300 employees, the wage increase rate was only 4.45%, falling short of the target.
"The gap between major companies and small businesses has widened. We want to make sure that this is rectified," Rengo chairperson Tomoko Yoshino declared at a press conference.
It is expected that to materialize this goal, SMEs themselves will need to strive to improve their performance. That includes increasing productivity. At the same time, smaller companies must properly pass on increased costs, such as raw material and labor costs, in their transaction prices. A survey of transaction conditions for the six months up to the end of March 2024 found that 19.8% of these costs had not been passed on.
Tight Labor Market
In fact, many SMEs are being forced to implement "defensive wage increases" to secure needed workers. That is despite no improvement in their business performance.
Large companies too will suffer if the smaller companies with which they do business cannot raise wages and therefore cannot hire new workers. The overall result will be worsening business performance and stagnant capital investment.
Some large companies enjoying good business results have already announced plans to significantly raise wages in the 2025 fiscal year. We would like managers of large companies to take into consideration the interests not only of their own companies but also those of their SME partners. SMEs need to be in a position to raise wages sustainably.
We also urge the government to step up its monitoring of transaction conditions. Early revision of the Subcontract Act to encourage price transfers will also likely become necessary.
Raising Wages for Sustainable Economic Growth
The Japanese economy is at a major crossroads in its drive to completely escape deflation. Real wages, which take into account price fluctuations, increased for the first time in 27 months in June. Then they fell again in August and September. If wage increases do not continue to outpace inflation, we cannot expect to sustain autonomous economic growth.
The Keidanren plans to include a clear statement that the establishment of substantial wage increases is a social responsibility of companies. This should be in its management guidelines for the spring 2025 labor offensive.
SMEs account for 70% of employment in Japan. If we are to finally overcome deflation it is essential to create an environment in which these smaller companies can continue to raise wages. We hope that society as a whole will share this recognition.
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Author: Editorial Board, The Sankei Shimbun
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