Japan’s workers haven’t had a raise in 30 years. Companies are under pressure to pay up

Hong Kong/Tokyo

Hideya Tokiyoshi began his career as an English teacher in Tokyo nearly 30 years ago.

Since then, his salary has remained almost the same. That’s why, three years ago, after giving up hope of a higher salary, the school teacher decided to start writing books.

“I consider myself lucky, because writing and selling books gives me an extra income. If it wasn’t for that, I would have been stuck in the same salary cycle,” Tokiyoshi, now 54, said. “That’s why I was able to survive.”

Tokiyoshi is part of a generation of workers in Japan who have barely risen their entire lives. Now, as prices rise after decades of inflation, the world’s third-largest economy is being forced to reckon with the larger problem of declining living standards, and intense political pressure for companies to pay more. is facing

Japanese Prime Minister Fumio Kishida is urging businesses to help workers keep up with higher living costs. Last month, he called on companies to raise pay above inflation, a call some are already heeding.

As in other parts of the world, inflation has become a major headache in Japan. In the year In December, basic consumer prices rose 4 percent. That’s still lower than in the US or Europe, but represents a 41-year high for Japan, where people are more accustomed to falling prices.

“In a country where your wages haven’t risen in nominal terms in 30 years, that results in real wages falling quite rapidly. [of inflation]Stephen Engrik, Tokyo-based senior economist at Moody’s Analytics, said.

Last month, Japan recorded its biggest drop in income, once inflation is taken into account, in nearly a decade.

In 2021, the average annual salary in Japan was $39,711, up from $37,866 in 1991. According to data from the Organization for Economic Cooperation and Development (OECD).

That means workers received less than 5 percent of their pay over the same period, compared with a 34 percent increase in other Group of Seven economies such as France and Germany.

Experts have identified several reasons for the stagnation in wages. For one, Japan has long had the opposite of what it now faces: low prices. Deflation Beginning in the mid-1990s, Because of the strong yen—which pushed down the cost of imports—and the bursting of a domestic asset bubble.

“For the past 20 years, consumer price inflation has been essentially unchanged,” said Müge Adalet McGowan, senior economist at the Japan desk at the OECD.

So far, consumers would not have reached into their wallets or felt the need to demand better pay, he added.

But as inflation rises, people are likely to start complaining “strongly” about the lack of growth, predicted Shintaro Yamaguchi, an economics professor at the University of Tokyo.

Experts say Japan’s wages have also suffered because it lags in another metric: its productivity rate.

According to Yamaguchi, the country’s productivity, measured by how much workers add to the country’s GDP per hour, is below the OECD average, and according to Yamaguchi, flat wages are “perhaps the biggest reason ” Is.

“Usually wage and productivity growth go hand in hand,” McGowan said. “Firms perform better when productivity increases and [when] They do better, they can offer higher wages.

Japan’s aging population is an additional problem because an older labor force equates to lower productivity and wages, he said. The way people work is also changing.

According to McGowan, in 2021, about 40% of Japan’s total workforce was employed part-time or worked irregular hours, up from about 20% in 1990.

“As the share of these non-regular workers has increased, of course the average wage remains low, because they make less,” he said.

People cross a street in the Ginza area of ​​Tokyo in November.  The shape of Japan's workforce is changing, with more and more people working part-time.

According to economists, Japan’s unique work culture is contributing to wage stagnation.

Many people work in traditional “lifetime employment” systems, where companies go to extraordinary lengths to keep workers on the payroll for life, Engrik said.

This means they are often very cautious about raising wages in good times so that they have the means to protect their workers in bad times.

“They don’t want to let people go. So they have to have that buffer to be able to keep them on the payroll when a crisis hits. They said.

Its seniority-based pay system, where workers are paid based on their rank; According to McGowan, length of service, rather than performance, reduces incentives for people to change jobs, which in other countries generally helps raise wages.

“The biggest problem in Japan’s labor market is the insistence on seniority,” said Jasper Cole, a prominent Japanese strategist and investor. “If true merit-based pay were to be introduced, job turnover and career growth would increase enormously.”

Last month, Kishida warned that the economy was at stake, and said Japan risked stagnation if wage growth continued to lag behind price growth. The term refers to a period of high inflation and stable economic growth.

Increasing salaries by 3% or more annually was already a primary goal of Kishda’s administration. Now, the prime minister wants to go a step further, with plans to create a more formal system.

Asked for details, a government spokesman said the new “comprehensive economic measures will include extended support for wage growth, linked to improvements in productivity.”

A representative of the Ministry of Health, Labor and Welfare said authorities plan to lay down guidelines for companies by June.

Hideya Tokiyoshi, a teacher in Japan, said he has barely seen his salary increase in the past 30 years.

Meanwhile, the country’s largest labor group, the Japan Trade Union Confederation or Rengo, is now demanding a 5 percent wage increase in talks with management at various companies this year. The annual negotiations will begin this month.

In a statement, Ringo said it was under pressure because workers were paying “globally inferior wages”, and needed help with rising prices.

Some companies have already done so. Fast Retailing ( FRCOF ), the company behind Uniqlo and Theory, announced last month that it would raise salaries in Japan by up to 40 percent, acknowledging that pay in the country had “fallen low” in recent years.

While inflation was a factor, the company “wanted to align with global standards, to be able to increase our competitiveness,” a Fast Retailing spokesperson said.

More than half of the country’s largest firms plan to raise wages this year, according to a Reuters poll released last month.

Suntory, one of Japan’s largest beverage companies, may be one of them.

Customers shop for vegetables at a Tokyo supermarket in January.  Japanese Prime Minister Fumio Kishida is urging businesses to raise wages and help workers keep up with the high cost of living.

CEO Takeshi Niami is weighing a 6 percent increase for his Japanese workforce of about 7,000 people, according to a spokesman, adding that it is subject to negotiations with the union.

The news may prompt other businesses to follow suit.

“If a few big companies in Japan raise wages, many other firms will follow,” Yamaguchi said. “Many firms look at what other firms do.”

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