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30 Years since last pay Increase for many Japanese workers

In Tokyo, Hideya Tokiyoshi began his profession as an English instructor roughly 30 years ago.

His pay has essentially not changed since then. So, three years ago, the teacher decided to start writing books after giving up on the idea of getting paid more.

“I consider myself fortunate to have a second source of income from writing and selling books. If it weren’t for that, Tokiyoshi, now 54, would still be working at the same wage. “That’s how I managed to live,”

Tokiyoshi belongs to a generation of Japanese laborers who have never received a significant pay increase in their whole working careers. Now that prices are rising after decades of deflation, the third largest economy in the world is being obliged to address the significant issue of declining living standards, and businesses are dealing with enormous political pressure to increase their pricing.

Business leaders in Japan are being urged by Prime Minister Fumio Kishida to assist workers in keeping up with rising living expenses. He urged businesses to increase wages last month at a rate above inflation, and some have already complied. Japan is suffering from inflation much like the rest of the world.

Core consumer prices increased 4% from December to the prior year. That reflects a 41-year high for Japan, where consumers are more accustomed to costs declining, although it is still modest in comparison to America or Europe.

“Real wages are dropping rather rapidly as a result of [inflation] in a country where you haven’t seen nominal pay growth for 30 years,” said Stefan Angrick, a senior economist at Moody’s Analytics based in Tokyo.

After accounting for inflation, Japan’s earnings last month experienced their largest decline in over a decade. long-standing issue

The average yearly wage in Japan increased from $37,866 in 1991 to $39,711 in 2021, according to data from the Organization for Economic Co-operation and Development (OECD).

Employee compensation increased by less than 5% as a result, compared to a surge of 34% in other Group of Seven economies, like France and Germany, during the same time period. Numerous factors have been cited by experts as contributing to the stagnant earnings.

For starters, Japan has struggled for a long time with the opposite of what it is currently dealing with: low pricing. A strong yen, which reduced import costs, and the implosion of a domestic asset bubble were the two factors that caused deflation to begin in the middle of the 1990s.

According to Müge Adalet McGowan, senior economist for the OECD’s Japan bureau, there has essentially been no change in consumer price inflation over the previous 20 years. Consumers wouldn’t have felt the need to demand greater compensation or have hurt their wallets up until now, she continued.

But according to Shintaro Yamaguchi, an economics professor at the University of Tokyo, when inflation rises, people are expected to begin complaining “strongly” about the absence of hikes.

a shifting labor market

According to experts, Japan’s salaries have also suffered since it performs poorly on another metric: productivity rate. According to Yamaguchi, the output of the nation is lower than the average for the OECD and is “probably the primary cause” for flat wages. Output is determined by how much labor contributes to a nation’s GDP per hour.

According to McGowan, “generally speaking, wages and productivity increase go hand in hand together.” “Firms perform better and [when] they do better, they may offer higher compensation,” says productivity growth.

Because an older labor force tends to be associated with poorer productivity and salaries, she claimed that Japan’s aging population was an additional problem. Additionally, there are changes in how people work.

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

“Of course the average earnings also stay low since they make less,” she said, referring to the increase in the percentage of these non-regular workers. Economists claim that the unique “lifetime” employment culture of Japan is a factor in the country’s stagnant wages.

Many people work in the conventional “lifetime employment” system, where employers will go to great lengths to keep employees on the payroll forever, according to Angrick.

Because of this, they are frequently very cautious about raising pay in prosperous times so that they have the resources to safeguard their workers in difficult times.

They don’t want to fire workers. In order to keep them employed when a crisis arises, they therefore need that cushion, he said. According to McGowan, its seniority-based pay system, which rewards employees based on seniority and length of service rather than performance, reduces the incentives for people to change occupations, which in other nations generally helps to raise wages.

According to renowned Japan strategist and investor Jesper Koll, “the main problem in Japan’s labor market is the obstinate emphasis on compensation by seniority.” There would be a lot more job switching and career advancement if true merit-based pay were implemented. Organizational pressure

In a previous warning, Kishida stated that if wage increases continued to lag behind price increases, Japan risked entering stagflation. The phrase describes a time when inflation was high and economic growth was sluggish.

One of the main objectives of Kishida’s administration was already to raise wages by 3% or more annually. With intentions to establish a more organized system, the prime minister now wants to go one step further.

A government official informed CNN that the “comprehensive economic measures will include enhanced support for wage rises, coupled with an improvement in productivity” when the media outlet enquired about the measures’ specifics.

A spokesman from the Ministry of Health, Labor, and Welfare stated that regulations would be released for businesses by June.

At this year’s negotiations with the management of various companies, the largest labor union in the nation, the Japanese Trade Union Confederation, or Rengo, is now calling for pay hikes of 5%. This month marks the beginning of the yearly talks.

In a statement, Rengo claimed that the reason it was pushing for the change was because workers were receiving “poor salaries on a worldwide scale” and required assistance with mounting costs. Already taking action are several businesses.

Last month, Fast Retailing (FRCOF), the company that owns Uniqlo and Theory, stated that it will increase salary in Japan by up to 40%, conceding that pay in the nation had “remain[ed] low” in previous years.

The company wants to comply “with worldwide norms, to be able to boost our competitiveness,” a Fast Retailing spokeswoman said, acknowledging that inflation was a consideration.

More than half of the major companies in the nation intend to increase wages this year, according to a Reuters poll issued last month.

One of them could be Suntory, one of Japan’s largest beverage manufacturers. According to a spokeswoman, CEO Takeshi Niinami is considering a 6% rise for the company’s about 7,000 employees in Japan. The spokesperson said that the boost was contingent upon negotiations with a union.

Other companies might decide to copy the news’ example.

Yamaguchi asserted that many businesses would raise pay if some of the largest Japanese corporations did so, if only to remain competitive. “Many companies observe what other companies do.”

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