TOKYO (Reuters) - Three-fifths of Japanese firms plan to keep overall compensation flat or even cut it in the coming business year, a Reuters poll found, in a further blow to the government’s attempts to boost incomes and stronger economic growth.
The world’s third largest economy shrank at the fastest pace in six years in the fourth quarter, and risks from the spreading coronavirus could push the economy into recession in the current quarter.
Companies who do increase pay are feeling the pressure to attract young and talented workers amid acute labour shortages due to the fast-ageing population, but even most of them plan increases of 3% or less, the Reuters Corporate Survey showed.
The survey found 58% of firms plan no increase in base pay, a crucial element of Japan’s wage structure, which makes up the bulk of monthly pay and provides the basis of bonus and retirement pay. Many firms tend to offer bonuses instead, which can be unwound flexibly to cope with economic swings.
“We’re considering base pay hikes mainly for young workers,” a manager at a wholesale company wrote in response to the survey.
The survey results underscore the challenge Prime Minister Shinzo Abe faces in generating a self-sustaining growth cycle needed to put a decisive end to deflation and boost inflation toward the Bank of Japan’s elusive 2% target.
The results add to evidence that years of broad wage rises under Abe’s stimulus policies, dubbed Abenomics, are ebbing in annual wage negotiations getting underway and to be decided March 11. Some companies expect their profits to be squeezed in the business year from April due to the coronavirus outbreak in China, Japan’s largest trading partner.
In a glimmer of hope for Abe’s goal of boosting workers’ wages, however, 58% of companies in the Reuters survey think his raft of labour reforms are tending to push up the overall amount of compensation.
“Regardless of profits, hiring will be negatively affected if we don’t raise wages,” a manager at a food-processing company wrote in the survey. A manager at an electric-machinery maker said many firms were adopting the labour reforms more in form than in substance, “so this won’t lead to a breakthrough in labour productivity.”
In the survey, companies were evenly split on the pros and cons of measures aimed at loosening Japan’s inflexible work practices and notoriously long hours.
Most firms have a positive view of mid-career hiring, still considered unusual in a nation that has long prized lifetime employment at one company. Many companies also favour Abe’s push for merit-based pay, signalling a move away from the seniority-based model that has backed the job-for-life system.
Traditionally, Japan’s new graduates tend to swallow meagre salaries in exchange for the promise of a job until retirement, with pay rising steadily through annual wage hikes.
Years of deflation and fitful growth punctuated by recessions ended the expectations of pay raises as unions focused on preserving jobs.
Abe, whose policies brought a burst of growth after he took office in late 2012, pressured companies to resume pay increases. More recently, companies have taken a more varied approach as more withhold blanket pay hikes across the industry and pay more for young and high-tech workers while restraining wages for middle-aged and elderly workers.
But the Reuters survey found more companies resisting than supporting Abe’s push for equal pay for equal work.
“It’s a bad law that will sap the competitiveness of Japanese businesses and vitality of society, isn’t it?” a manager at an industrial rubber maker wrote.
In some countries, equal pay for equal work is aimed at rectifying gender and racial inequality. But in Japan, the focus is on narrowing the gap between permanent employees and low-paid part-timers and contractors, who make up about 40% of the workforce, often working side by side.
Japanese firms tend to resist equal pay for equal work because it will mean raising the pay of lower-paid workers, analysts say.
The Reuters Corporate Survey, conducted from Jan. 30 to Feb. 12 for Reuters by Nikkei Research, canvassed 502 big and midsize non-financial companies. Roughly half of them answered questions on wages on condition of anonymity to express opinions freely.
Editing by William Mallard and Jacqueline Wong