Japan Inc strives to lure skilled workers as inflation, labour crunch bite

TOKYO - From inflation allowances to the reskilling of workers, companies in Japan are stepping up efforts to help employees fight rising prices and a labour crunch, even though some cannot afford pay hikes that do more than offset cost-push inflation.

As annual “shunto” labour talks get into full swing, momentum from both labour and management is growing for companies to offer such hikes to cushion, even if not beat, consumer inflation, which hit a 41-year high of 4 per cent in December.

At the spring session of the labour talks, set to wrap in mid-March, major companies, such as Toyota Motor, negotiate with in-house unions to set wages for the coming fiscal year from April.

Labour shortages and rising consumer inflation, which is double the central bank’s target of 2 per cent, are spurring cautious companies, with a 500-trillion-yen (S$5.04 trillion) hoard of internal reserves, to hike wages.

About a quarter of Japanese companies have offered inflation allowances or plan to do so, said corporate credit research firm Teikoku Databank. Such allowances range from 6,500 yen for monthly payments to 54,000 yen in lump sums, on average.

“I received the money just when we had our second baby,” said Ms Shinichiro Mori, who got a one-off allowance of 150,000 yen last summer from groupware developer Cybozu, one of about 800 employees to do so.

“I appreciated the money,” Ms Mori, 41, said. “We spent it on baby goods, utility bills and other living expenses, as we stayed home all day taking care of our baby.”

News that Fast Retailing, operator of the Uniqlo clothing chain, will revise its pay system for employees, with raises as much as 40 per cent, provides another example.

The private sector expects the drive to help boost productivity, meshing with Prime Minister Fumio Kishida’s “new capitalism” initiative on wealth distribution that places a top priority on wage hikes.

Such demands by Japanese policymakers come against the backdrop of 15 years of grinding deflation that saw companies shelve hikes in base salary from the early 2000s to the early 2010s, when rounds of stimulus spending failed to spark economic growth, but piled up public debt instead.

Organisation for Economic Cooperation and Development data shows Japanese workers’ wages have grown about 5 per cent over a period of 30 years from 1990, during which US pay rose 1.5 times and pay for South Koreans doubled.

Mr Takahide Kiuchi, a former member of the board of the Bank of Japan, called for wage hikes to be sustained over time so that cumulative pay rises could offset price hikes in the long run.

“Bonuses or inflation allowances would have only a limited impact on easing the pain of cost-push inflation, as consumers tend to save one-off payouts rather than spend,” said Mr Kiuchi, now an executive economist at the Nomura Research Institute.

The government and the central bank say inflation must grow in tandem with wage growth to fuel private consumption, which accounts for more than half the economy, paving the way for the Bank of Japan to achieve its inflation target in a sustainable, stable fashion.

But one-off payments do not make consumers more confident about increasing spending, although a rise in base pay, a salary component that is hard to reverse, is more likely to boost such confidence and set workers spending more.

Real wages fell 2.5 per cent in November, down for the ninth straight month, following the previous month’s decline of 3.8 per cent, the latest data shows.

Ms Mori’s employer, Cybozu, has offered employees a record pay hike in the upper reaches of the 1 per cent to 10 per cent range in 2023.

That would surpass the 3 per cent target of Mr Kishida’s government and even the 5 per cent sought by the Japan Trade Union Confederation, while Japan’s biggest business lobby Keidanren urged companies to offer positive wage hikes, including base pay.

“We always feel the need to respond to labour shortages of engineers, in particular,” said Ms Yumika Nakane, the company’s human resources head.

“We set pay scales as we’re fully aware salary is one of the keys to attract workers.”

Despite a jobless rate of 2.5 per cent in November that reflects the tight labour market and steady job availability, at a ratio of 1.35 per seeker, policymakers complain about the absence of demand-pull inflation that entails wage growth.

At 2023’s “shunto” talks, large companies are likely to offer the biggest pay hikes in 26 years, or an average of 2.85 per cent for the financial year starting in April, a poll of 33 economists by the Japan Economic Research Centre showed.

However, small companies, which employ seven of every 10 workers, face a severe situation and more than 70 per cent of them have no plan to raise wages, a separate poll by the Jonan Shinkin Bank and the Tokyo Shimbun newspaper showed.

To push small companies in this direction, the authorities want to improve labour productivity and encourage more workers to switch to industries with better prospects for growth, provided that they will not lack for employment.

Mr Kishida’s government plans to tap 1 trillion yen over the next five years in human resources, providing new support for companies hiring mid-career workers as well as for reskilling efforts to spur labour turnover.

Workers have high expectations from 2023’s labour talks, which they hope will counter cost-push inflation while tackling the tight labour market to help boost the economy.

Some companies are ready to take the initiative.

For instance, Internet media company Cyberagent’s “reskilling centre” has trained 200 information technology engineers, upgrading their skills to match its needs, besides wooing engineers from outside.

From this spring, it will also raise the starting salary for new graduates by 12 per cent to 420,000 yen.

“As the IT industry faces a lack of engineers, we can contribute to resolving the labour crunch by cultivating human resources, which is our strength,” said Mr Hiroto Minegishi, the company’s general manager for technical human resources.

“As a result, we can help wages growth and enhance productivity across the IT industry.” REUTERS