Japan Inc strives to lure skilled workers as inflation bites

TOKYO — From inflation allowances to the reskilling of workers, firms in Japan are stepping up efforts to help employees fight rising prices and a labor crunch, even though some cannot afford pay hikes that do more than offset costpush inflation.

As annual shunto labor talks get into full swing, momentum from both labor and management is growing for firms to offer such hikes to cushion, even if not beat, consumer inflation, which hit a 41-year high of 4% in December.

At the spring session of the labor talks, set to wrap in mid-March, major firms, such as Toyota Motor Corp. 7203.T, negotiate with in-house unions to set wages for the coming fiscal year from April.

Labor shortages and rising consumer inflation, which is double the central bank’s target of 2%, are spurring cautious firms, with a 500-trillion-yen ($3.85 trillion) hoard of internal reserves, to hike wages.

About a quarter of Japanese firms have offered inflation allowances or plan to do so, said corporate credit research firm Teikoku Databank. Such allowances range from 6,500 yen ($50) for monthly payments to 54,000 yen in lump sums, on average.

“I received the money just when we had our second baby,” said Shinichiro Mori, who received a one-off allowance of 150,000 yen last summer from groupware developer Cybozu, Inc. The company offered the payment to all its 800 employees.

“I appreciated the money,” Mori, 41, told Reuters. “We spent it on baby goods, utility bills and other living expenses, as we stayed home all day taking care of our baby.”

News that Fast Retailing Co., operator of the Uniqlo clothing chain, will revise its pay system for employees, with raises as much as 40%, provides another example.

The private sector expects the drive to help boost productivity, meshing with Prime Minister Fumio Kishida’s “new capitalism” initiative on wealth distribution that put a top priority on wage hikes.

Such demands by Japanese policymakers come against the backdrop of 15 years of grinding deflation that saw firms shelve hikes in base salary from the early 2000s to the early 2010s, when rounds of stimulus failed to spark economic growth, but piled up public debt instead.

SUSTAINABLE PAY HIKES

OECD data shows Japanese workers’ wages have grown about 5% over a period of 30 years from 1990, during which US pay rose 1.5 times and pay for South Koreans doubled.

Takahide Kiuchi, a former member of the board of the Bank of Japan, called for wage hikes to be sustained over time so that cumulative pay rises could offset price hikes in the long run.

“Bonuses or inflation allowances would have only a limited impact on easing the pain of cost-push inflation, as consumers tend to save one-off payouts rather than spend,” added Kiuchi, now an executive economist at the Nomura Research Institute.

The government and the central bank say inflation must grow in tandem with wage growth to fuel private consumption, which accounts for more than half the economy, paving the way for the Bank of Japan to achieve its inflation target in a sustainable, stable fashion.

But one-off payments do not make consumers more confident about increasing spending, although a rise in base pay, a salary component that is hard to reverse, is more likely to boost such confidence and set workers spending more.

Real wages fell 2.5% in November, down for the ninth straight month, following the previous month’s decline of 3.8%, the latest data shows.

Mori’s employer, Cybozu, has offered employees a record pay hike in the upper reaches of the 1% to 10% range this year.

That would surpass the 3% target of Mr. Kishida’s government, and even the 5% sought by the Japan Trade Union Confederation (Rengo), while Japan’s biggest business lobby Keidanren urged companies to offer positive wage hikes, including base pay.

“We always feel the need to respond to labor shortages of engineers, in particular,” said Yumika Nakane, the firm’s human resources head. “We set pay scales as we’re fully aware salary is one of the keys to attract workers.”

Despite a jobless rate of 2.5% in December that reflects the tight labor market, and steady job availability, at a ratio of 1.35 per seeker, policymakers complain about the absence of demandpull inflation that entails wage growth.

LABOR TALKS

At this year’s shunto talks, large firms are likely to offer the biggest pay hikes in 26 years, or an average of 2.85% for the financial year starting in April, a poll of 33 economists by the Japan Economic Research Center (JERC) showed.

However, small firms, which employ seven of every 10 workers, face a severe situation, and more than 70% of them have no plan to raise wages, a separate poll by the Jonan Shinkin Bank and the Tokyo Shimbun newspaper showed.

To push small firms in this direction, authorities want to improve labor productivity and encourage more workers to switch to industries with better prospects for growth, provided that they will not lack for employment. —