Photo/Illutration Tomoko Yoshino, chair of Rengo, speaks to reporters in Tokyo on Oct. 20. (Asahi Shimbun file photo)

Rengo (Japanese Trade Union Confederation), Japan’s largest labor organization, decided to seek an overall wage increase of around 5 percent during next year’s “shunto” spring wage negotiations.

Given the rising prices and swelling corporate profits, Rengo’s shunto target represents a reasonable and necessary level of pay growth. Labor and management should make the utmost effort to hit that goal.

Specifically, Rengo wants an across-the-board increase in basic pay scale of around 3 percent combined with a periodic pay rise for the 5 percent expansion.

The figure is higher than Rengo’s wage growth target of around 4 percent over the past seven years.

Tomoko Yoshino, chair of Rengo, said the target reflected Rengo’s commitment to ensure pay growth reflects inflation.

The consumer price index rose 3 percent from a year earlier in September, the steepest rate of inflation in 31 years, except for rises due to consumption tax hikes.

The Bank of Japan expects the inflation rate for the entire fiscal 2022 to near 3 percent with a possibility of rising higher.

Workers’ real wages decline if they are not raised in line with inflation.

In fact, the average real wage declined year-on-year for five straight months through August, according to labor ministry data.

The pay increase rate gained through shunto negotiations in recent years has been around 2 percent, including the regular raise. If pay growth remains at that level next year, Japanese workers’ living standards will fall further.

Rengo has every reason to shoot for a higher shunto target than in recent years.

Rising prices of crude oil, gas and other natural resources translate into an outflow of wealth from Japan as a whole. But a weaker yen is increasing the earnings of many Japanese companies, especially exporters. Japanese firms also have huge cash reserves amassed over the years.

Japanese companies held 280 trillion yen ($1.9 trillion) of cash and deposits last fiscal year. Many firms are returning profits to shareholders through higher dividend payouts and share buybacks.

While not all industries or companies are showing strong earnings performances, many Japanese companies can afford to offer wage hikes to return more of their profits to employees.

If companies opt to hold down pay raises to further build up cash reserves, consumer spending will shrink, hitting the companies’ bottom lines.

This would be a textbook case of the fallacy of composition.

Labor and management should share this recognition and agree on a reasonable wage increase to compensate for inflation.

Masakazu Tokura, head of Keidanren (Japan Business Federation), recently said the price trend will be “the most important factor considered” in making wage decisions at the upcoming spring talks.

We hope Tokura, as chief of the most powerful business lobby, will provide effective leadership to persuade the management of companies to offer satisfactory pay increases.

To ensure pay growth in a wide swath of the economy, it is also important to allow prices of transactions between businesses to rise to reflect higher costs.

At the end of October, Prime Minister Fumio Kishida said the top policy priority is to ensure that wages will rise in tandem with inflation. The next shunto will be critical in enabling the Japanese economy to enter a “virtuous cycle of growth and distribution,” he argued.

But policy measures to promote wage hikes in the government’s comprehensive package to stimulate economic growth are clearly insufficient.

Kishida also referred to the development of “guidelines” for wage increases involving both Keidanren and Rengo. But he has offered no clue on the specifics.

It is necessary for the government to propose specific measures to push up wages for serious and meaningful policy debate on this crucial topic.

--The Asahi Shimbun, Nov. 6