Shunto Wage Hikes: Unpacking the False Headlines
JAPAN POLITICS
II. Persistent Real Wage Declines
The latest data shows Japanese workers' real wages (adjusted for inflation) fell 1.3% year-on-year in February, the 23rd straight monthly decline [Reuters, 4/8/2024]. Stubbornly high inflation of 3.3% continues outpacing nominal pay growth of 1.8%, eroding consumers' purchasing power despite record Shunto raise announcements.
III. Base Pay Hikes vs. Seniority Premiums
A key factor obscuring more widespread real wage growth is the distinction between increases to base pay versus seniority-based pay hikes. As the Japan Economy Watch elaborates, "A hike in base pay of, say, 1%, means that every worker gets an average raise of 1%. By contrast, a seniority hike of 1% means that as each worker gains one more year of experience...his/her pay goes up 1%. But seniority hikes do very little to raise overall wage levels.
Examining 2023's celebrated 3.58% Shunto figure, only 2.12% was an actual base pay increase, with the rest being seniority-based premiums [MHLW data]. This dynamic reduces the Shunto's impact on overall wages.
IV. The Divide: Large Firms vs. SMEs & Non-Regular Workers
Moreover, the high-profile Shunto figures predominantly reflect wage agreements at major corporations with powerful enterprise unions. Just 16% of Japanese employees are unionized [CNBC], mostly concentrated in these large firms.
In contrast, for small and medium enterprises (SMEs) comprising over 99% of businesses, as well as the growing pool of non-regular workers accounting for over 40% of the labor force, substantive union representation and bargaining power are sorely lacking.
The fabled Shunto wage increases largely bypass this vast swathe of the workforce," and later surveys will likely show far lower raises around 3%, nowhere near the 5%+ highs touted in the headlines. In asking a UA Zensen official last year how they were able to manage such big wage increases even though the represent so many part time workers at grocery stores throughout Japan, the official waved his hand and said that the headline pay rises they won were at the major firms and not for the army of part timers in their union.iWith unionization rates plummeting from 39.8% at big firms to just 10.2% for companies with 100-999 workers and 0.8% under 99 employees [CNBC], achieving inclusive wage growth is an uphill battle.
V. Government Tax Incentive Efforts
To spur wage growth, the government has introduced new tax incentives allowing large corporations to deduct between 15-35% of the value of pay raises from their corporate taxes, based on the size of the increase [Bloomberg, 12/14/2023].
However, critics argue these measures disproportionately benefit major firms and their workers while doing little for struggling SMEs operating in the red with no taxable income to leverage such deductions.
As the head of Rengo labor union lamented, "More needs to be done to help [smaller] companies pass production costs onto customers...The economy can't run off just the major urban companies" [Bloomberg, 11/17/2023].
Rather than compelling corporations to utilize their ¥555 trillion in retained earnings [Japan News, 2022] to raise wages, the tax policies essentially transfer government funds to big businesses already slated for large pay hikes.
VI. Toward Inclusive Wage Growth
As the Bank of Japan closely monitors wage trends for signs of an embedded inflationary cycle before normalizing monetary policy, achieving sustainable and inclusive real wage growth across all segments of the workforce will be crucial.
We desperately need across-the-board pay hikes from the bottom up but until grassroots unions can effectively organize SMEs and non-regular workers, this split labor market will only cement widening inequality.
Comprehensive efforts to bolster bargaining power and cost pass-through abilities for smaller firms, not just incentives benefiting major corporations, must be prioritized to ensure rising productivity translates into higher real wages for all Japanese workers.
I. Introduction
Amidst celebratory headlines about major Japanese corporations agreeing to record-setting 5%+ wage hikes in the 2024 Shunto negotiations [Asahi Shimbun, 3/13/2024], a more complex picture is emerging. While these headline figures from unions like Rengo seem to signal a potential watershed in reversing Japan's entrenched wage stagnation, they mask stark disparities across the workforce
Sources
Nippon.com, "Soaring Inflation Means Real Wages Drop in Japan Despite Pay Hikes", February 20, 2024
CNBC, "Portfolio manager: shunto wage negotiations are 'not a sustainable indicator' of Japan's inflation", March 18, 2024
Japan News (The Yomiuri Shimbun), "Pressure Mounting for Wage Increases in Shunto Negotiations; Fears about the Response of Struggling SMEs", February 8, 2024
NHK, "Prices of 2,800 food items to rise in April in Japan", March 31, 2024
Nikkei Asia, "Japan forecasts income growth to outstrip inflation in fiscal 2024", December 21, 2023
National Confederation of Trade Unions (Zenroren), "On '2024 Keidanren Report on Management and Labor Policy'", January 18, 2024
NHK, "Japan PM Kishida promises wages will rise more than prices", March 29, 2024
Asahi Shimbun, "Unions at large firms win major wage hikes in Shunto Talks", March 13, 2024
Kyodo News, "Prospect of wage growth still challenging for households, BOJ", December 30, 2023
Reuters, "Japan's Major Union Reps Set to Seek Minimum 5% Pay Rise in 2024", December 1, 2023
Nikkei Asia, "Japanese inflation hit 41-year high in 2023", January 19, 2024
The Diplomat, "Kishida's Unfinished Business: Political Economy of Wage Increases in Japan", January 31, 2024
CNBC, "Why Japan's 'shunto' wage hikes may not bring cheer to over 80% of its workers", April 3, 2024
Bloomberg News, "Japan's Labor Union Head Says Small Firms Hold Key to Wage Gains", November 17, 2023
Bloomberg, "Japan to Use More Tax Incentives to Encourage Wage Increases", December 14, 2023
Reuters, "Japan real wages fall for 23rd straight month in February", April 8, 2024
Japan Economy Watch by Richard Katz, "Shunto: Why 4-5% Headline Wage Hike Really Means 2-3%", March 13, 2024
