Rate of small firms in Japan hiking wages rises to 63%

The proportion of small and midsize firms in Japan raising base pay has increased from the previous fiscal year to reach 63.1 per cent amid high inflation and acute labor shortages, a government survey showed yesterday.

The figure for fiscal 2024 was up 8.8 per centage points from the previous year's 54.3 per cent, confirming that pay hikes have spread from bigger firms in a positive development for the Bank of Japan as it aims to achieve stable inflation backed by robust wage growth.

However, the proportion of small and midsize firms raising base pay is still lower than the 81.1 per cent for big companies, according to the Finance Ministry data.

While large firms have seen strong profit growth and have ample cash on hand, the situation is more severe for smaller firms, which often cite relatively low profitability and the difficulty of passing on increased costs to customers by hiking prices.

Pay growth at small and midsize firms, which employ about 70 per cent of the total workforce, is key for Japan.

The data showed 24.4 per cent of small and midsize firms agreed to raise wages by 5 per cent or more, far lower than the 53.8 per cent for bigger firms.

A total of 50.2 per cent said they have not been able to raise prices to reflect increased labor costs. The government has been stepping up efforts to ensure smaller firms can follow bigger ones in raising pay, at a time when households are struggling to cope with the rising cost of living.

Some 86 per cent of firms in the ministry's survey cited boosting the morale of employees, offering better benefits and reducing employee turnover as reasons for raising pay.

It was followed by 67.0 per cent that cited inflation and 54.9 per cent who said they wanted to secure additional employees.

The Finance Ministry conducted the survey between mid-march and mid-april, targeting 1,125 firms across the nation, including 638 small and midsize firms capitalised at less than 1 billion yen ($6.5 million).