Japanese PM Kishida urges companies to raise wages by 3% or more By Reuters

© Reuters. Japanese Prime Minister Fumio Kishida speaks during his press conference after parliament re-elected him as prime minister after his ruling Liberal Democratic Party’s victory last month in Kanti, Japan, on November 10, 2021.

Written by Laika Kihara and Kantaro Komiya

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida on Friday urged companies whose profits have recovered from pre-pandemic levels to raise wages by 3% or more in labor talks next spring, aiming for a virtuous cycle of growth and wealth distribution.

Kishida told the “New Capitalism” committee meeting that the government will take steps to continuously increase the incomes of social care workers such as child care workers, nurses and caregivers by 3%.

As the recovery in the world’s third-largest economy continues to uneven between sectors, Kishida has pledged to help small businesses pass on costs of raw materials, energy and labor to customers.

Kishida has made addressing wealth inequalities and redistributing wealth a political priority, making proposals to raise wages as part of this strategy and helping ease the pain on consumers from rising oil and food costs.

“I expect that, in next year’s business talks, those companies whose profits have recovered to pre-corona levels will raise wages by 3% or more to start new capitalism,” Kishida said at a committee meeting. “The government will make every effort to create an environment to support higher wages among the private sector.

Japan’s largest companies and trade unions agreed to raise wages by 2.18% in 2019, 2% in 2020, and 1.86% this year.

“I want to reverse the trend of cutting wage increases,” Kishida added.

It was the first time the government had set a numerical target for companies on higher wage levels in four years.

Many companies have kept wage growth low to protect jobs and weather the coronavirus pandemic. It was not clear whether companies would respond to a request for a voluntary wage hike, even if the proposal was made.

“As economic uncertainty escalates, companies will be very cautious about raising wages,” said Takumi Tsunoda, chief economist at the Shinken Institute for Central Bank Research.

“It will be very difficult to achieve a 3% wage increase because the economy is not recovering as strongly as the government expected.”

Former Prime Minister Shinzo Abe had little luck in raising wages despite repeated requests for companies to pass on huge profits reaped from ‘Abenomics’ stimulus policies.

In wage negotiations last year to set salaries for 2021, Japanese companies offered the lowest wage increases in eight years as the pandemic hit corporate profits.

Sluggish wage growth has been among the factors preventing the Bank of Japan from reaching its 2% inflation target, as it weakens household purchasing power and discourages companies from charging more on their goods.

As part of efforts to prop up an economy still stagnant, Japan last week unveiled a record $490 billion spending package, bucking the global trend toward withdrawing crisis-style stimulus measures.

The package included funding to increase the wages set by the government for nurses and social care workers by 3%.

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