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The Limitations of Japanese-style Labour-Management Negotiations as Reflected in “Employment or Wage Increases”


On Aug. 6, the Nihon Keizai Shimbun newspaper published an article on alternative Japanese-style labour–management negotiations, focusing on the “employment or wage increases” approach.
A summary of the article can be found below.

The minimum wage for FY2022 (national average) has been set at 961 yen per hour, up 31 yen and 3.3% from the previous year. This increase is the largest ever, but it is not enough to end the stagnation of real wages amid rising inflation. The recent controversy over whether to hire or raise wages reflects the limitations of labour–management negotiations in Japan, which show reluctance to metabolize industries.

Overseas, Germany will raise its minimum wage by 14.8% to 12 euros (about 1,600 yen) in October this year. The U.K. also raised its minimum wage by 6.6% to 9.5 pounds (about 1,500 yen) in April this year. Compared to Western countries, which are rushing to cope with inflation, Japan lags far behind.

Behind this is the conventional wisdom that excessive increases in the minimum wage will increase unemployment. The logic here is that small- and medium-sized enterprises with low productivity cannot maintain employment if the minimum wage exceeds the added value generated by each worker.

This dichotomy of “employment or wage increases” has been repeated in wage negotiations every spring. During the 2008 global financial crisis and other periods of recession, many companies controlled wage increases in the name of maintaining employment, and unions have basically accepted this policy.

On the other hand, in Germany and the U.K., labour unions are organized by industry, so the approach is to relocate labour toward growing industries through corporate metabolism to balance the overall increase in employment while raising wages at the same time.

The labour shortage in Japan is serious at present, and hourly wages in the distribution industry, where there are many workers near the minimum wage, remain at record high levels. Even if some companies in other industries are forced to reduce their workforce due to the minimum wage hike, workers will be able to find new jobs. If neither labour nor management change their direction to pursue simultaneous employment and wage increases, rather than suppressing wage increases to maintain employment, they will never be able to escape this notion of “cheap Japan.”
(Quotes above)

Is it really likely that raising the minimum wage, which is as high as that of Europe and the U.S., will cause small- and medium-sized enterprises to go bankrupt and negatively impact employment? Since people who work at minimum wage cannot find new work once they lose their jobs because of their low skill levels, does raising the minimum wage as high as that of the West threaten their livelihoods as a result?

David Atkinson, a former Goldman Sachs analyst who has had a major influence on Japanese government policy, describes the relationship between minimum wage hikes and bankruptcy of small- and medium-sized enterprises in his book, Critical Juncture in the National Destiny, as follows.

In the U.K., where the minimum wage has been raised for the past 20 years, the government has asked a university to analyze the impact of wage increases in detail. Specifically, they are continuously analyzing the financial statements of companies that employ a high percentage of workers at or near the minimum wage, both before and after the minimum wage increase. It turns out that even the most affected companies did not increase their closure rates, did not increase their unit prices much, and did not reduce their employment. And, quite importantly, labour productivity has been confirmed to have increased through management innovations and employee motivation. (p.193)

This view is worth heeding. In short, appropriate wage increases do not bankrupt companies and threaten employment, but tend to be overcome by the creativity and ingenuity of labour and management, resulting in increased productivity.

Atkinson has long argued that the minimum wage should be raised by about 5 percent annually to solve Japan’s current low growth and low productivity.

According to the 2021 Basic Survey on Wage Structure, the percentage of people working below 1.1 times the national average of the minimum wage reached 14.2% of employed workers in 2020, expanding rapidly from 9.5% in 2009 to over 5 million.

If the lives of these workers are greatly improved and their motivation for work increases, while at the same time management adds its own originality and ingenuity, labour productivity will increase and both labour and management will be freed from the obsession of corporate bankruptcy and unemployment.

Rather than choosing between employment or wage increases, labour and management should pursue both employment and wage increases.