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Smaller Japanese firms faced tough pay decisions

Publication Date : 28-07-2014


Though employees of many small and medium-size companies will benefit from this year’s shunto spring labour-management wage negotiations, challenges have already surfaced for next year’s shunto negotiations. This is mainly because of the tough decisions smaller firms had to make this time around.

This year’s negotiations saw the average pay rate hike exceed 2 per cent, including those for annual regular wage hikes, according to the Japanese Trade Union Confederation (Rengo).

The development can partly be attributed to Prime Minister Shinzo Abe’s initiative to coordinate talks between leaders from political, business and labour union circles.

But a closer look at the result showed that in many cases, employers were forced to accept pay hike demands because of labour shortage fears or a “follow-the-crowd” mentality. Gaps in working conditions between regular and nonregular workers still remain wide.

Masayuki Nimbari, president of Nimbari Kosakusho Co., a sheet metal processing company based in Higashi-Osaka, Osaka Prefecture, said, “I really feel that the economy has been recovering.” The city is known for having one of the nation’s largest clusters of small and midsize companies.

The company implemented a basic 500 yen pay scale hike during spring for the first time in more than 10 years. Business conditions had been severe for the firm since the Lehman Brothers collapse in 2008, but more orders started coming in for parts for energy-saving devices after the 2011 Great East Japan Earthquake. Mainly on the strength of such orders, he said company sales are higher than before the Lehman Brothers collapse.

During the period of deflation, there were virtually no pay hikes. But Rengo demanded basic pay hikes in this year’s shunto campaign after a five-year hiatus.

According to the final shunto results announced by Rengo on July 17, 1,489 companies, or nearly 30 per cent of its member firms, had implemented basic pay hikes. The average figure stood at 1,426 yen, or 0.49 per cent.

Of these companies, 937 are small and midsize companies with less than 300 employees each. The average pay hike was 1,330 yen, or 0.54 per cent.

Though the rates did not reach the nation’s inflation rate, a senior Rengo member praised the result and said, “It’s the first step toward an exit from deflation,” because the basic pay hikes had also spread to small and midsize firms.

But Yukio Manaka, the head of the Japanese Association of Metal, Machinery and Manufacturing Workers, a federation of labour unions of many small and midsize companies in the industrial sectors, said, “We are not that optimistic.”

“There were many small and midsize companies which had no choice but to implement basic pay scale hikes in the face of other companies’ moves due to fears of a labour shortage,” he said.

Tohoku Steel Co., a Murata, Miyagi Prefecture-based company that produces specialty steel for car parts, implemented a hike of 1,000 yen this year after a six-year hiatus. The decision was difficult because the company had to lower prices, pressured by client companies and fierce competition with rivals in emerging countries. Profit margin rates had also been declining.

Takaaki Sato, the operation manager of the company, said: “Though circumstances are severe, cooperation from employees is essential to improve business efficiency in the future. We also have responsibility as a corporation to cooperate and work toward economic recovery, so we decided to implement a basic pay hike.”

A precision equipment maker based in Kyoto Prefecture with 150 employees also implemented a 5,000 yen regular wage increase, despite a drop in company sales and profit.

An executive of the company said: “We already had a shortage of engineers. We feared our engineers would move to rival companies [if we failed to hike salaries].”

Woes of nonregulars

Positive results were seen for nonregular workers that account for nearly 40 per cent of nation’s workers, including part-time employees and workers with limited-term contracts.

According to Rengo, an increasing number of companies have improved their working conditions. Some companies introduced a system where nonregular employees can become permanent employees and others clarified criteria on salary increases.

However, the average hourly wage hike of part-time workers and other nonregular employees was 11 yen, a far lower figure than Rengo’s goal of 30 yen.

For a bus service company in Chiba Prefecture, regular driver employees received a basic pay hike of 1,250 yen this spring. But drivers on limited-term contracts received nothing.

A 59-year-old driver who has been employed under a limited-term contract for the company for four years said: “There are fewer workers because of cost-cutting measures, so we have become busier. Though commodity prices are on the rise, our salaries have not increased. Because we do almost the same amount of work, I want my salary to be equal to those of regular employees.”

Noboru Ogino, the director of the Japan Institute for Labour Policy and Training’s Research and Statistical Information Analysis Department, said: “In this spring’s shunto, workers in small and midsize companies gained benefits after many years. I can appreciate that point.”

Ogino, an expert on the history of shunto in the independent administrative institute, added: “I can’t clearly say that improved business performances resulted in wage hikes. It was largely because of social factors. For example, employers believed their companies should reflect the average results rather than differ from other firms, as well as feeling a sense of corporate social responsibility. As commodity price levels have largely risen, it depends on the 2015 shunto whether the wage hikes will be able to really lead to full-fledged support for the economy.”

Rengo’s dilemma

Rengo should have been proud of the high levels of wage hikes that were achieved. However, Rengo faces a dilemma over next year’s shunto.

Abe’s initiative in talks among political, business and labour union leaders, which created a trend toward wage hikes, resulted in a lower presence of Rengo.

Since autumn last year, the government had allowed senior officials of the Economy, Trade and Industry Ministry to visit major companies and had conducted follow-up research on the results of wage hike agreements. The actions were aimed at pressuring employers.

For Abe, who vowed to lead Japan out of deflation, realizing the wage hikes was necessary to prevent an economic downturn that could be triggered by the consumption tax rate hike in April.

Even an executive member of a labour union, which succeeded in gaining a basic pay hike, said, “Though I feel frustrated, the government’s efforts were a bigger factor.”

The next point of interest will be whether the wage hike trend will continue into next year and beyond.

According to the Internal Affairs and Communications Ministry, the consumer price index, including the effects of the consumption tax hike, rose 3.7 per cent in May from last year. Household finances will therefore be squeezed unless wage hikes are higher than the figures seen this year.

On the other hand, employment itself will be threatened if personnel expenses negatively impact management conditions of small and midsize companies.

Until recently, Rengo based its shunto demands on the increase in commodity prices the previous year. But Rengo executives have yet to agree on whether the demands should include the three percentage point rise of the consumption tax as a whole.

Rengo President Nobuaki Koga avoided making a clear comment on this point at a press conference on July 17, suggesting the difficulties of coordinating opinions on the subject. “Though we will consider it from now on, commodity price levels will surely continue to rise. They will be in the spotlight when we discuss wages in the future,” he said.

A crucial point for shunto next year will be the protection of worker household finances. This will test all of Rengo’s skills.


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