Who Benefited from the 'Largest Wage Increase in 33 Years'... "80% of Japanese Workers Did Not Receive It"

Japan's record-breaking wage increase achieved in the March spring wage negotiations (Chuntu) has been evaluated as a half-success. It is analyzed that 80% of all Japanese workers were excluded from the benefits of the wage increase, and the gap in the increase rates between large corporations and small and medium-sized enterprises (SMEs) has widened.

On the 2nd (local time), US economic media CNBC reported this by citing data from the Japan International Labor Foundation (JILAF). According to the report, last month Japan's average wage increase rate in Chuntu recorded 5.28%, the largest increase in 33 years, but only 16.3% (about 7 million people) of all Japanese workers benefited from the wage increase.

[Image source=EPA Yonhap News]

Moreover, this was concentrated in large corporations, further widening the gap in increase rates between large corporations and SMEs. The 5.28% figure is the average wage increase rate for all companies including large corporations. When classified by SMEs only, the average increase rate is 4.42%, which is 0.86 percentage points lower than the overall average. Last year, the difference in increase rates between large corporations and SMEs was 0.35 percentage points, so the gap has widened.

CNBC pointed out the low union membership rate of Japanese SMEs as the cause of this phenomenon. According to the JILAF report, in large corporations with more than 1,000 employees, 39.8% of employees were union members, accounting for 67.3% of all union members nationwide. In contrast, the union membership rate in companies with 100 to 999 employees was only 10.2%, and in companies with fewer than 99 employees, it was only 0.8%.

Richard Kay, portfolio manager at asset management group Comgest, said in an interview with CNBC, "Chuntu is their own league targeting only some workers such as those in Japan's large corporations," and pointed out that "it should be kept in mind that it does not reflect Japan's overall inflation situation." The media also noted that considering Japan's inflation rate exceeding 2%, SME workers will have to endure a decline in real wages going forward.

However, there are also views that foresee a positive future for Japanese SMEs. Kei Okamura, Japan equity portfolio manager at asset management firm Neuberger Berman, said, "Currently, high wage increases are being made mainly by large export companies that have achieved good performance due to the weak yen," but analyzed that "if large corporations continue to raise wages at the current pace, the trickle-down effect will soon spread to SMEs."

Meanwhile, the Bank of Japan (BOJ) announced at the March Monetary Policy Meeting, which ended negative interest rates for the first time in 17 years, that it confirmed a virtuous cycle of wage and price increases. However, it expressed a cautious stance on further rate hikes, stating that this rate increase does not mean a transition to a tightening regime.