After repeatedly calling on companies to hike wages — with limited success — Japan’s government is following up with more incentives to get employers to fall in line.
(Bloomberg) — After repeatedly calling on companies to hike wages — with limited success — Japan’s government is following up with more incentives to get employers to fall in line.
Since his election in 2021, Prime Minister Fumio Kishida has said he wants to see a more equitable distribution of corporate profits so that more people feel financially secure and spend freely. The Bank of Japan, too, has said wage increases are crucial to achieving its goal of steady, demand-led inflation.
While companies such as Nintendo Co. and Uniqlo-owner Fast Retailing Co. have announced large pay increases, such moves haven’t been widespread enough to trigger the self-sustaining wage-price cycle that the BOJ says is needed. Japan’s average annual wage is less than $40,000, lower than in Italy and only just over half that in the US, according to the OECD.
Adding urgency to the quest are higher food and fuel prices, which have caused Japan’s highest inflation in four decades. More than 90% of respondents to a survey by the Yomiuri newspaper this month said higher prices were a burden on their household finances, 60% of them describing it as “serious.”
Kishida is planning to extend subsidies for electricity bills, pressing power firms to put off a planned increase in charges to help those struggling with the basics. The question for many workers, though, is whether they will be better off in real terms when the new financial year starts in April.
Here are some of the ways Japan is trying to elicit substantial wage hikes in the private sector:
1. The Ministry of Economy, Trade and Industry has launched a name-and-shame campaign allowing smaller subcontractors to rate large companies on their willingness to negotiate on prices as costs rise. The theory is that fairer pricing for goods and services provided by subcontractors, which often complain of being squeezed by bigger corporate customers, would enable them to raise their own employees’ wages.
2. After earlier corporate tax breaks to encourage wage hikes appeared to have little effect, the government expanded incentives in April last year. Under the new program, which is effective through March 31, 2024, large firms that raise their overall salary payments by 4% or more and add to their spending on education and training can claim 30% of the extra outlays against tax.
Small and medium-sized enterprises are eligible for tax deductions of 40%, up from the previous 25%, if they increase total wages by 2.5% or more and spend more on training. Most Japanese are employed by small and medium-sized enterprises, where wages have been stagnant for decades.
3. Almost two thirds of Japanese companies aren’t eligible for the above deductions because, as loss-making firms, they don’t pay any corporate tax. But special subsidies are now available for small and medium-sized firms that raise salaries despite being in the red.
4. The government has set aside a budget of 1 trillion yen ($7.3 billion) for what has been dubbed “reskilling” — getting employees to learn new skills, enabling them to switch to higher-paying jobs. For corporate workers, the tradition in Japan has long been to stick with one employer for life, which can lead to skills becoming outdated.
5. Kishida is keeping up pressure on companies through big business groups like the Keidanren lobby. He told parliament this week that he was planning to revive three-way meetings with business and labor groups to encourage more companies to raise wages. The BOJ has also sought to nudge big employers to hike pay.
Rengo, the association of labor unions, is targeting a 5% hike, higher than January’s inflation rate of 4.2%. Economists forecast an average 2.85% rise at large companies, in the Japan Center for Economic Research ESP Forecast Survey, published in January.
6. Kazuo Ueda, the academic nominated to take over as BOJ governor in April, has said the central bank should maintain its easy policy for the time being. While he recently told lawmakers that it’s not appropriate for the BOJ to specifically target wage hikes, he said it should provide “an environment in which companies can raise wages.”
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