Big tax break not enough for Japan’s employers to hike pay
TOKYO — Over the past two years, Masataka Yoshimura has poured money into the customsuit business his family founded over 100 years ago. He has upgraded his factory, installed automated inventory management systems and retrained workers who have been replaced by software and robots.
Japan’s prime minister wants him to do one more thing: Give his employees a substantial raise.
Wage growth has been stagnant for decades in Japan, the wealth gap is widening and the quickest fix is nudging people like Yoshimura to pay their employees more. Higher wages, the thinking goes, will jump-start consumer spending and lift Japan’s sputtering economy.
But raises are a nonstarter for Yoshimura. Increasing wages would be “truly fatal,” he said last month from his office at Yoshimura & Sons in Tokyo. And he is far from alone in his thinking. Business groups, union leaders and others have questioned the feasibility of a plan by Prime Minister Fumio Kishida to offer sizable tax deductions to companies that raise pay.
That businesses would resist increasing wages even when essentially paid to do so shows just how intractable the problem is. Years of weak growth and moribund inflation rates have left companies little room to raise prices. Without steady, moderate increases in inflation, corporations’ profits — and their workers’ wages — have languished, economists say.
The reaction to the wage proposal is an inauspicious sign for Kishida, who took office two months ago promising to reverse the economic damage of the past two years and put
Japan’s economy back on track.
Kishida’s plan is a first step toward defining the nebulous concept, which he has described as a framework for creating sustainable growth and reducing economic inequality.
The prime minister is calling on employers to increase pay as much as 4% in 2022. Companies that comply will be allowed to increase their overall corporate tax deductions up to 40%. The government has announced that it will raise officially regulated wages 3% next year for nurses and workers providing care for children and seniors.
While many businesses have recognized the need for higher wages, they have questioned whether the measures, as announced, will have any effect on the country’s regular pay-setting process.
Major companies and unions negotiate raises each spring in a ritual known as “shuntou” — literally, “spring offensive.” The last time the result even approached Kishida’s recommended level was in 1997, when workers won a 2.9% raise. Today, average wages remain stuck at around $2,800 a month, about the same level as two
decades ago.
During the pandemic, Japan has avoided the unemployment spikes seen in countries like the United States. But it has also meant that many companies have limited flexibility in hiring and firing under the system of lifetime employment, potentially making them less responsive to changing economic conditions.
Low wage growth is effectively the outcome of a compromise struck between labor and capital. Since the 1990s, “Japanese workers have preferred job security over wage growth,” said Naohiko Baba, chief Japan economist at Goldman Sachs, though companies do pay workers biannual bonuses that can fluctuate significantly with corporate profits.
Companies tend to limit their permanent workforce through the use of temporary or part-time workers, avoiding the workfor-life contracts that were common in Japan through the early 1990s, when the country’s economic bubble burst. Today, so-called nonregular employees make up around 37% of the country’s labor force, an underclass of low-paid, dispensable workers, nearly 70% of whom are women.