Why Japan’s ‘Shunto’ Wage Increase Can’t Put Over 80% of Its Workers to Work

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Akihiko Matsuura, UA Zensen, center president, raises his fist with union members during a rally for annual wage negotiations, Thursday, March 7, 2024, in Tokyo, Japan.

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Japan is likely to see its sharpest wage increase in 33 years following “shunto” talks that prompted the country’s central bank to raise interest rates for the first time in 17 years on hopes that higher wages will boost domestic demand and boost inflation.

But will the “shunt” hike really work for his army of salarymen?

A first estimate from the Japanese Trade Union Confederation, or Rengo, It suggested Its 7 million members will get a 5.28% pay hike in FY 2024, including a 3.7% base pay hike.

Unionized workers who expect to receive a pay bump despite being made up Only 16.3% of Japan’s workforce By June 2023 – a record low, according to the Japan International Labor Foundation.

However, headline inflation, which is above the Bank of Japan’s 2% target from April 2022, affects the entire population.

This means that about 84% of Japan’s workforce is leaving out generous pay increases negotiated by unions.

Richard Kaye, a portfolio manager at asset management group Comguest, told CNBC in an interview last month that it’s “important to keep in mind that the shunt only captures a fraction of Japanese workers, it doesn’t reflect Japan’s overall inflation picture.”

The recent wage negotiations are likely to benefit workers mostly at large Japanese companies, while employees in small and medium enterprises may face rising prices without a commensurate increase in their salaries.

Small companies, big concerns

The JILF report also revealed that unionized employees were mostly from large companies: companies with 1,000 or more employees had 39.8% of their workers unionized, and 67.3% of total union membership in the country.

In contrast, only 10.2% of workers in firms with 100 to 999 employees were unionized, compared to 0.8% for firms with fewer than 99 employees.

survey A survey of 4,527 companies between February 1 and 8 by credit agency Tokyo Shoko found that 85.6% of Japanese companies plan to raise wages in 2024.

However, there was a gap of 8.2 percentage points between large companies (93.1%) and small and medium-sized enterprises (84.9%), indicating “increasing polarization due to differences in their ability to raise wages and profitability,” the survey said. .

“I talk to companies every day that are trying to raise prices in Japan. It’s actually not as clear a picture as some people suggest… 80% of Japanese people work for companies that really can’t for various reasons. . such a wage increase,” Comgest’s Kaye said.

On March 14, Reuters reported the case Trucking firm owner Ikuko Sakata, who said despite facing a tight labor market and rising demand, he could “barely afford to make ends meet” due to inflation.

The Tokyo-based company that she runs pays about 80 of its employees the minimum wage, putting their base salary at about 280,000 yen ($1,900) a month before overtime, the report added.

This is because in order to raise salaries, smaller companies have to pass on costs, which means losing business from customers or the larger companies that contract them. “We try to negotiate price increases, but they never fully meet,” she said. “At best it’s 50%, and at most, it’s 20% to 30%.”

Neuberger Berman: Wage hikes in Japan expected to 'trickle down' and extend to smaller firms

However, Kei Okamura, Japanese equity portfolio manager at Neuberger Berman, has a slightly different view. He said that while the big companies are seeing an increase now, there will be a trickle down effect which will benefit the smaller companies.

“Obviously, large cap exporters will be the first to benefit, if the weaker yen is helping their bottom line and, as a result, they are able to pay more for wages… [but] If large caps start at this pace, we should see this [wage hikes] falls into the small to medium-sized space.”

Okamura also pointed out that the current Kishida government is also “very eager” to respond to talks by small-cap companies to pass on costs to large companies, which could help small companies raise prices and therefore wages for their employees.

In an economy that has suffered from decades of deflation, people are spending more, consuming fuel and driving up prices.

A virtuous cycle is expected to lead to sustained growth in the Japanese economy, which has been in recession since the 1990s when its asset bubble burst.

According to information from World Bank And according to CNBC calculations, Japan’s average GDP growth from 1990 to 2022 came in at 0.94%, compared to global average GDP growth of 2.91% over the same period.

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