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How can wages in Japan be increased?


As prices continue to rise, raising wages is an urgent issue for households and the Japanese economy. In principle, wages should be decided by labour and management, but the Kishida administration, having set wage increases as an important cornerstone of its policy of “New Capitalism,” has called on companies to raise wages appropriately. What should be the mechanism to realize appropriate wage increases?

Wages in Japan currently lag far behind international standards. According to OECD statistics, the growth rate of real wages in Japan, when real wages in 1995 are set at 100, remains almost unchanged at 103 in 2021, 26 years later. Considering that wages in other countries have grown significantly—122 in Germany, 128 in France, 143 in the UK, and 149 in the US—the wage situation in Japan, which has remained stagnant for more than 25 years, is quite abnormal.

On September 18, the Asahi Shimbun newspaper published the fourth article in its special feature “Capitalism NEXT: Beyond Japanese-style Employment,” entitled “How can wages in Japan be increased?”

(Summary below)
In July this year, Prime Minister Fumio Kishida told business leaders at the Keidanren (Japan Business Federation) conference that companies whose performance had recovered to pre-COVID levels should achieve wage increases of 3% or more. With about six months before next year’s Spring Wage Offensive, this was perceived by labour and management as an attempt at intervention by the government with concrete figures.

The labour side, which is seeking wage increases, is also wary of government intervention. If the government were to take a negative stance on wage increases, it could have a negative impact on labour–management negotiations. However, the organizational rate of trade unions is only 17%, and many small and medium-sized enterprises have nothing to do with the Spring Wage Offensive.
Broadly sharing the need for wage increases is a challenge for both labour and management, and Rikio Kozu, who served as RENGO (Japanese Trade Union Confederation) President from 2015 to 2021, recalls that forums such as the tripartite forum play a meaningful role.

How should government, labour, and management deal with the issue?

The Swedish system provides some ideas for a solution. In Sweden, the Federation of Export Industry Unions, which takes the initiative in wage negotiations, negotiates with management on the basis of productivity, price trends, and other factors, and a conciliation authority (Medlingsinstitutet) facilitates the spread of the rate of the negotiated wage increases to the whole society.
It is a three-way collaboration between the government, labour, and management.

Hisashi Yamada, Deputy President of the Japan Research Institute and an expert on labour issues, suggests that a neutral third-party committee should be set up in Japan to provide guidelines for wage increases based on data and objective analysis. He argues that, “Even if the government advocates a 3% wage increase, the reasons may not be clear in some cases.
Although it might take some time, a mechanism should be created for government, labour, and management to share a common understanding of the current situation regarding wage increases and to discuss it.”
(Quotes above.)

Meanwhile, it is worth looking at wages in South Korea, where company-based unions are the norm, as in Japan, and where the union organization rate is as low as 10%. While wages in Japan have increased by only 0.4% over the past 20 years, wages in South Korea have increased by 43.5%.

OH Hak-soo, a senior researcher at JILPT (Japan Institute for Labour Policy and Training), points out that the effect of the labour–management consultation system being legislated in South Korea has been significant. With the enactment of the law, labour–management consultations have been established in small and medium-sized enterprises with few trade unions, as in Japan, making it easier to protect workers’ rights. (Business Insider, Feb. 22)

The establishment of labour–management consultations in South Korea is required by law for companies with 30 or more employees, to be held every three months.
Basically, the agenda is to promote cooperation between labour and management, such as productivity improvements, benefits packages, and other issues, but many labour–management consultations also serve as an alternative to collective bargaining.

A significant increase in the organization rate would be necessary for the RENGO-led Spring Wage Offensive to achieve a high rate of wage increase and to increase its ripple effect. However, achieving this will take a long time. Meanwhile, there is an urgent need to make significant improvements to wage levels in Japan, which lag behind international trends.

Establishing a neutral third-party committee to provide guidelines for wage increases or legislating a labour–management consultation system? It is true that each of these options poses its own problems for labour–management relations.
However, what is first and foremost necessary for the Japanese economy and society today is a way to quickly and substantially increase the wages of workers, while at the same time eliminating the wage gap between large companies and small and medium-sized companies, between regular workers and non-regular workers, and between men and women.

We would like to see government, labour, and management hold fruitful discussions and establish a highly effective methodology as soon as possible.