only a minority of workers will receive increases

only a minority of workers will receive increases

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Much has been said in recent months about the importance of the success of the Japanese ‘shunto’, the annual round of negotiations between employers and unions for salary revaluation that finally resulted in an agreement for an average increase of 5.28% by 2024. The rise, the most pronounced in three decades, is one of the reasons that has led the Central Bank of Japan (BoJ) to end more than seven years of negative interest rateswith the hope that higher wages boost domestic demand and inflation. This triumph of social dialogue has, however, a ‘b side’ in the context of the labor market, and that is that the proportion of workers who will benefit from the increases is negligible.

The figures extinguish the ‘salary party’. Rengo (the Japanese Trade Union Confederation) estimates that its seven million members will receive the increase this year, including a base salary increase of 3.7%, but the Japan International Labor Foundation points to the total number of workers will receive the increase are only 16.3% of Japan’s workforce, that is, those who are unionized. The rest, almost 84% of workers, will not benefit from the agreed increase.

What does affect everyone is headline inflation, which has been above the Bank of Japan’s 2% target since April 2022. Before the deal was closed, Richard Kaye, portfolio manager at asset management group Comgest , he said in an interview with CNBC that it was “important to note that ‘shunto’ only captures a fraction of Japanese workers, it does not reflect Japan’s overall inflation picture.”

The majority of unionized workers work in the big Japanese companies. The breakdown indicates that companies with 1,000 or more employees had 39.8% of their workers unionized and constituted 67.3% of the total union members in the country, while companies with between 100 and 999 employees had only 10.2% of unionized workers and those under 99, 0.8%.

The brakes on inflation for smaller companies

The size of the company is another upward facing filter. A survey conducted by credit agency Tokyo Shoko Research in early February found that 85.6% of Japanese companies plan to increase salaries in 2024. However, there was a difference of 8.2 percentage points in the intention to raise salaries between large companies (93.1%) and small and medium-sized companies (84.9%), “indicating a growing polarization due to differences in their ability to increase salaries and profitability,” indicated the probe.

In this sense, Kaye highlights that behind the idealized image of salary increases there is a different reality: “80% of Japanese people work in companies that, for various reasons, really cannot increase salaries that much.” One of them is Ikuko Sakata, owner of a trucking company with fewer than 80 employees, who confirmed to Reuters that despite facing a tight labor market and growing demand, he “could barely afford to make ends meet” due to inflation.

The wage-inflation circle and the future of the economy

Increasing salaries would mean, in the case of smaller companies, passing on the increase in costs to customers, with the risk of losing part of the business.

The expectations of the Government and the BoJ are that the salary increase generates an increase in spending and boosts consumption, which would lead to a rise in prices that leaves behindthe deflation that has been experienced for decades. This spiral, they hope, would lead to sustainable growth of the Japanese economy, stagnant since 1990 after bursting its asset bubble.

According to World Bank data and CNBC calculations, Japan’s average GDP growth from 1990 to 2022 was 0.94%, compared to average global GDP growth of 2.91% over the same period.

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