Japan Wage Revolution: Japanese companies are gearing up for another round of substantial pay hikes in 2024, following this year’s significant increases. Early signals from businesses, unions, and economists suggest that the labor and cost pressures that prompted this year’s salary boosts, the most substantial in over three decades, will persist into the crucial spring wage talks of next year.
Leadership at major companies like Suntory Holdings and Meiji Yasuda Life Insurance is already signaling their intentions to offer substantial pay increases in 2024, aiming to retain talent and offset rising inflation. This shift represents a significant departure from the prolonged deflationary trend Japan has experienced, signaling a paradigm shift towards inflation, according to Suntory Holdings CEO Takeshi Niinami.
Prime Minister Fumio Kishida is actively pressing companies to raise pay to mitigate the impact of increasing living costs on households. The consecutive yearly pay hikes also align with one of the prerequisites for Bank of Japan Governor Kazuo Ueda to roll back the extensive monetary stimulus of the past decadesustainable wage growth.
The dynamics are shifting after decades of stagnant wage growth in Japan, influenced by chronic deflation and a climate of low growth. External factors, such as the pandemic and the Ukraine war, have led to supply constraints, sharp rises in raw material prices, and a subsequent need for companies to pass on higher costs to consumers.
Also Read : Japan Largest Union Aims for 6% Wage Boost in Spring Talks
With inflation consistently surpassing the Bank of Japan’s 2% target, companies are under unprecedented pressure to implement pay hikes to attract and retain talent. Major trade unions, including Rengo, have demanded substantial pay increases, resulting in average wage hikes of 3.58% among major companies this year. The pressure is expected to continue, with Rengo and another major union, UA Zensen, planning to demand further increases next year.
The urgency to lift wages has gained momentum as cost-of-living pressures intensify, adding a sense of immediacy to a goal that has eluded Japanese policymakers for decades. Prime Minister Kishida’s commitment to achieving robust pay hikes aligns with his broader economic agenda to avoid a repeat of the economic stagnation Japan faced in the late 1990s and early 2000s.
A sustained period of solid wage growth in 2024 would not only fulfill Kishida’s promises but also provide support for the Bank of Japan’s potential shift away from its controversial monetary stimulus. As the markets anticipate the central bank’s move, Kishida’s initiatives, including subsidies, tax incentives, and support for small and medium-sized enterprises (SMEs), play a pivotal role in driving economic growth.
However, the challenge remains to ensure that wage increases extend to smaller firms and regional areas. While larger companies are leading the charge, the uneven distribution of wage hikes among sectors and regions poses a key consideration for policymakers. Clarity on this front may emerge through the BOJ‘s quarterly tankan business survey in December and wage talks scheduled for January, providing insights into the broader economic landscape and the potential for sustained wage growth.
Our Reader’s Queries
What is the wage system in Japan?
The wage system based on seniority has a unique mechanism that limits wages for young workers, leading to the accumulation of profits within the company. This, in turn, allows for increased fixed investment in the business, leading to expansion and ultimately higher wages for workers in the mid-to-senior age group. This system ensures that workers are rewarded for their loyalty and experience, while also promoting the growth and success of the company.
Why are wages stagnant in Japan?
The ageing workforce has caused a flattening of the seniority-based wage structure, resulting in a prolonged stagnation of average wages. The 2022 Wage Census reveals that men’s average monthly wage has only increased by 6% since 1995.
Is Japan still in stagnation?
Despite the government’s strong promotion of massive monetary easing, the economy remains stagnant. While stock prices have increased, leading to a rise in wealth for many, there has been little improvement in consumption, GDP, or commodity prices. The unemployment rate has declined, but this has not translated into significant economic growth.
What is the average hourly wage in Japan?
In Japan, the minimum wage currently stands at 931 JPY (USD), but this will increase to 961 JPY from April 01, 2023. Additionally, the Labor Standards Act of 1947 mandates that employees who work beyond their regular hours are entitled to receive overtime pay.