Inflation bites: What it would take for Japan to get a national pay rise

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The Japanese economy is different from other economies. It’s extremely long economic stagnation to various other issues make this economy stand out.

Since the lost decade, Japan is seeing three constant things stuck at zero: inflation, interest rates and the chances of the shunto “spring offensive” of wage demands being another crushing disappointment.

Because of inflation fears, many companies have not raised the prices of their products. But this has also made them offer the lowest average wage increases in the OECD.

As a result, the companies have struggled to recruit everyone from waiters to software engineers.

The wage condition could change, not only because of the above reasons but also for inflation. Even though it is low by world standards, the inflation that rises from 0.3% to 1.1% is a huge increase in Japan.

That has sparked talks between the trade unions and the large corporations for the application of shunto.

Rengo, the nation’s largest labour union association’s chief, has encouraged its 7m members to push for wage rises that have stagnated since 1997.

Even the government and the nation’s biggest business lobby, the Keidanren, is actively pushing for shunto. The present Prime Minister of Japan, Fumio Kishida, see it as a historic opportunity to achieve what his predecessor Shinzo Abe could not.

He wishes to make his new capitalism agenda equal to Abenomics. While the latter focused on trickle-down economic policy, the former focuses on distribution and inclusion. He is focusing on raising the wages, which is the lowest among the developed nations.

The artificial price controls have staved off price inflation for a long. But recently, there is an increase in the inflation rates. To make matters worse for the economy there is the problem of shrinking the work-age population.

All of these factors empower the unions to come forward and demand the much-needed wage hike without the fear of endangering the corporate economy. Tax cuts for the corresponding wage hike are included in the PM’s dream economic policy.

But there are speculations over trade unions’ ability to push for such reforms because of their past performances. There are also concerns about whether the companies would initiate a wage hike amidst the pandemic and the supply chain crisis.

Japanese unions are infamous for their emphasis on collaboration over confrontation with companies to protect jobs. Their inability to fight may cost shunto, even if the Prime Minister himself is involved in it.

Some sectors are in such bad shape there is even doubt whether they could stand up. Both international factors and domestic structural problems hamper this and many fear that a hike would not come this year too.

Not only does this hamper the hope for a hike, but it will also hamper the growth of consumption, which is needed for the national economy.

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