March 13 (Bloomberg) -- Japanese labor unions said they clinched their biggest raises in years as Prime Minister Shinzo Abe calls for companies to boost wages to help put the world’s third-largest economy on a path to sustainable growth.
Based on negotiations across 43 union groups, companies agreed to increase base wages by an average of 1,950 yen ($19) a month in the coming year, the Japanese Trade Union Confederation, known as Rengo, said yesterday in Tokyo. The union group, the nation’s biggest, said the increment was significant enough to rank as the biggest raises won since at least the turn of the century.
The agreements come as Abe calls on companies that benefited from his policies -- Toyota Motor Corp. to Nippon Paper Industries Co. are headed for record profits -- to help reverse more than 15 years of deflation. Still, the pay bump is unlikely to keep up with projected inflation, much less a looming sales tax increase, meaning workers risk falling behind as Abe wants them to help drive economic growth.
“The raise is not enough to lift the country out of deflation,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “Considering price increases and the coming sales tax hike, base salaries in real term actually fall this year.”
Abe has said efforts to end deflation and put Japan on a sustainable growth path hinge on reconnecting a “long-missing link between corporate profitability and wages.” He has called for wages to outpace the 2 percent inflation targeted by the Bank of Japan, whose unprecedented easing has weakened the yen and boosted earnings from exports.
Workers have been timid about asking for even that modest of an increase. Unions for about 1,000 auto-industry companies requested an average raise, excluding bonuses, of about 1.3 percent, or 3,048 yen a month, according to the Japan Confederation of Automobile Workers’ Unions. The modest proposals put wages at risk of failing to keep up with rising prices and the looming three percentage-point increase in the sales tax next month.
“Japanese unions and workers have become so used to the static to slightly deflationary environment that they think a 2 percent rise in their nominal wage is a good result,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.
At Toyota, the average union member will get 2,700 yen bump in monthly base pay, equivalent to 0.8 percent of last year’s average salary. Beyond cars, Nippon Steel & Sumitomo Metal Corp. to retailer Lawson Inc. and Daiwa Securities Group Inc. agreed to increase base wages too. Hitachi Ltd. will raise base wages by 2,000 yen a month, while Osho Food Service Corp. agreed to increase them by 10,000 yen.
Toyota fell 0.1 percent to close at 5,720 yen in Tokyo trading, in line with the drop by the benchmark Nikkei 225 Stock Average. Nippon Steel closed unchanged, Lawson increased 0.2 percent, Daiwa Securities fell 0.4 percent and Hitachi slipped 1.5 percent.
Unions have long made the trade-off of sacrificing wage gains in favor of lifetime employment and job security as more companies look overseas for cheaper labor. This approach helps explain the nation’s 3.7 percent unemployment rate in January, the lowest among Group of Seven economies, and the 4.4 percent rate averaged during the past decade.
“Under Japan’s lifetime employment system, both labor and management feel they are members of the same family, and unions never make a strong demand to the management side,” Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo, said by telephone. “Labor unions which are used to zero base pay increases can’t change their attitudes suddenly.”
This labor system hasn’t spared manufacturing from hollowing out ever since Japan’s asset bubble burst in the early 1990s, ushering in a banking crisis and two decades of stagnation. Employment in the manufacturing industry peaked in 1992 at 15.7 million. By last year, it slumped to 10.4 million.
The lifetime employment structure also isn’t necessarily safe: companies including electronics maker Panasonic Corp. have said Japan’s labor system is too rigid. The country ranked 134th out of 148 nations in ease of hiring and firing, the World Economic Forum said in its 2013-2014 Global Competitiveness Report.
Firing restrictions have prompted Japan Inc. to resort to hiring temporary workers or reducing workers’ pay. Average wages dropped by about 15 percent since 1997, labor ministry data show.
“The unions are still very, very careful in terms of base wages and pushing the companies too far,” Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said by telephone. “It’s a challenge for Abe at face value because the government has made it a major piece of their overall political strategy” to increase wages along with prices.
Japanese labor’s tendency to shun confrontation is evident in government figures. There were 90 strikes in 2012, down 99 percent from 1974’s peak of 11,575, according to the Ministry of Health, Labor and Welfare. Total labor disputes fell to 596 in 2012, the lowest annual tally based on records dating back to 1957, and fewer than half of those disputes were related to wages.
Led by Toyota, Japan’s largest company, the nation hasn’t always been free of conflict with labor. Founder and then-President Kiichiro Toyoda joined senior management in resigning in 1950 after breaking an agreement that banned staff cuts, when post-World War II strife pushed the company to the brink of bankruptcy. Still, strained relations at Japan’s largest carmaker have long been part of a bygone era.
Industrial disputes in Japan spiked during the oil crises of 1974 and 1975, and workers at auto plants were among those who won some of the biggest wage gains in the world, said John Price, a history professor at the University of Victoria in British Columbia.
“After that, there was a sort of new deal worked out, and the new deal was one of much closer collaboration and productivity-based bargaining,” said Price, who’s written a book about Japan’s labor movement. “It was quite a dramatic change and it’s carried on ever since.”
Cushy labor relations stand out particularly in today’s cutthroat globalized auto industry. In Korea, employees at Hyundai Motor Co. have gone on strike in all but four years since the carmaker’s union was formed in 1987. Workers ended a three-week strike in September by accepting a 5.1 percent raise in base salaries.
Hyundai estimates it’s lost output of more than 1.3 million vehicles and about 16 trillion won in sales because of strikes. Former union head Moon Yong Moon was arrested at least four times and laid off during the 1990s as workers used steel pipes and Molotov cocktails in clashes with police.
Other conflicts at auto factories have turned deadly. In India, a manager at Maruti Suzuki India Ltd. was killed during a riot by workers in 2012.
Labor clashes also don’t always translate into positive results for unions. Protests disrupted output for months at Ford Motor Co.’s plant in Genk, Belgium, last year, with union members going so far as to hold factory leaders captive at the factory. Ford later reached an agreement to close the plant at the end of this year.
For Japan, union demands were “appropriate” after such a long period of stuck wages, said Rikio Kozu, secretary general of Rengo.
“We can say the negotiating power of labor unions is getting stronger but still not strong enough to ask for 3 to 4 percent wage increases to cover price rises and sales tax increases,” JPMorgan’s Adachi said. “Labor unions abroad might have asked for much larger wage increases in the current situation.”
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