Major companies – including automakers – in Japan will raise pay for a sixth consecutive year as prime minister Shinzo Abe keeps pressure on businesses to boost remuneration in an effort to beat deflation that has dogged Japan for nearly two decades, a local media report said.
But as economic growth slows, firms have grown wary about offering big pay increases because that commits them to higher fixed costs at a time of uncertainty as company profits are leveling off, Reuters said.
Caught between the fear of a profit squeeze and the need to raise pay scales for low-paid part-timers and those employed at small firms to address the country's labour shortages, Japanese firms cannot afford to hike wages much for full-time workers, analysts told the news agency.
"Momentum towards wage hikes may weaken as underlying inflation remains weak," Hisashi Yamada, senior economist at Japan Research Institute, told Reuters. "Uncertainty is high on the external outlook such as the US-China trade war and Europe's unstable politics. On top of that, a national sales tax is scheduled to increase in October. Without enough wage hikes, it's difficult to defeat deflation."
The results of the 'shunto' talks between management and unions – announced by major companies in sectors such as cars – set the tone for full-time employees' wages across the nation, which have implications for consumer spending and inflation.
Bellwether Toyota Motor has offered a pay raise of JPY10,700 (US$96.21) on average, down JPY1,000 from last year.
"We made the decision as the sales tax rises in autumn, while taking into account the need to raise productivity, competitiveness and respond to unionists' motivations," Tatsuro Ueda, chief officer at Toyota's general administration and human resources group, told Reuters.
Honda Motor offered a base salary increase of JPY1,400, down JPY300 from 2018, while Nissan Motor pitched a rise of JPY3,000 yen, unchanged from last year.
"The trend of wage hikes remains intact. I hope wage growth will continue to boost the economy's virtuous cycle," chief cabinet secretary Yoshihide Suga told Reuters.
A survey by the Institute of Labour Administration, a think tank, predicted wage growth would slow to 2.15% this year compared with last year's 2.26% and the 17-year peak of 2.38% in 2015, despite hefty corporate cash piles.
A Reuters Corporate Survey last month found a slim majority – 51% of firms polled – saw wages rising around 1.5%-2% percent this year.
But while companies are conservative with pay raises, many have directed their large cash piles toward share buybacks to ensure better returns for their investors.
Reuters noted Japan's unions tend not to be so aggressive in pressing their demands as those in the west because they attach greater importance to job security and retain a sense of company loyalty.
The dwindling union membership has deprived unionists of bargaining powers with companies hiring more non-union part-timers and 'non-regular' [temporary] employees, who represent nearly 40% of workers.
"At this year's shunto, both companies and unions don't seem to put greater emphasis on wage hikes than before," Kiichi Murashima, economist at Citigroup Global Markets Japan, told Reuters.
"Instead, they are considering a wider range of issues like pay disparity, labour productivity and work-life balance."