EDITORIAL | Wage Increases Meaningful Only If Spread to Smaller Companies 

Japan is seeking to completely break out of the long-lasting grip of deflation. Major Japanese companies are responding one after the next by offering record-high wage increases during the spring 2024 labor offensive (shunto). 

There was a wave of responses from major firms in the auto and electronics industries on Wednesday, March 13. Many, including Toyota Motor Corporation, agreed in toto to the demands from their labor unions. 

Some other companies had not even waited for the collective response date to agree to the union's wage demands. Furthermore, in sectors like distribution and restaurants, there is growing momentum to increase the hourly wages of part-time and non-regular employees. 

Some major companies have even gone so far as to offer pay increases that go beyond what their unions were demanding. Although some problems remain with the level of wage increases demanded by the unions, we welcome the proactive stance taken by management in rewarding a wide range of workers. We would like to see this trend spread to small and medium-sized enterprises (SMEs) Currently, they are the companies conducting labor-management negotiations. 

Make Them Meaningful

Average wage increases in 2023 reached a 30-year high. Even so, real wages reflecting inflation continue to fall year on year. Unfortunately, nominal wage growth has failed to keep up with unprecedented increases in prices.

Negotiations under this year's labor offensive approached against this backdrop. The Japanese Trade Union Confederation (RENGO) set a wage increase target of "5% or more." Keidanren's chairman Masakazu Tokura responded by saying Keidanren's position is, "It is the social responsibility of companies to aim for wage increases that will keep up with inflation." 

Thus, both labor and management have agreed on the need for wage increases that will exceed last year's level. 

The problem is what will happen with small and medium-sized companies that account for 70% of total employment in Japan. To achieve a virtuous cycle of wage increases and growth for society as a whole, the drive for wage increases must also spread to these SMEs.  

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Need for Supporting Higher Household Incomes 

According to the Central Federation of Societies of Commerce and Industry, which represents SMEs, a little less than 30% of SMEs are entirely unable to pass on cost increases to their transaction prices. If SMEs are to increase wages, they first must be in a position to appropriately pass on cost increases for raw materials, fuel, and so on. 

Unless wage increases that outpace price increases are spread across society as a whole, the burden on household budgets will not be eased. That is needed so that the expectation of self-sustaining economic growth can be realized. 

We urge management at major companies to go beyond their own wage increases. They need to help ensure that SMEs can also sustainably raise wages by reviewing the transaction conditions they have with smaller companies. 

On March 13 Prime Minister Fumio Kishida attended a government-labor-management meeting with top leaders from the three sectors at the Prime Minister's office. There it was confirmed that the government would strictly enforce the anti-monopoly laws and subcontracting laws. 

It is also necessary to ensure transactions are conducted appropriately. Close cooperation between these three sectors will continue to be crucial if we are to avoid aborting the spread of wage increases. 

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun