The Oddity of Keidanren Now Accepting Wage Increases

From the government and large corporations, we hear a chorus celebrating strong corporate performance. They repeatedly assure the public that a gentle economic recovery is indeed underway. Strangely, however, wage increases are virtually nonexistent, from large corporations down to small and micro enterprises.

A mindset has permeated management, regardless of whether the economy is good or bad: wages and bonuses must not be raised. In short, the management policy of 'do not increase labor costs' has taken root.

Under these circumstances, it's no wonder that personal consumption, which accounts for about 60% of gross domestic product (GDP), fails to surge. If each of us were to shop more and spend money on leisure, the economy would undoubtedly improve in no time. The fact that each individual's consumption influences the economy is theoretically and practically sound.

Perhaps recognizing this situation, the Japan Business Federation (Keidanren), a representative body of business leaders, recently announced a policy to permit wage increases at companies with strong performance. It seems they too realize that they will face difficulties if households do not increase their spending.

Just Talk of Strong Performance

This implies that, for a long period, they have stubbornly maintained a stance of 'suppress wage increases at all costs.' Consequently, this recent acceptance of wage hikes, ostensibly for the benefit of households, comes with 'riders.' They adamantly deny the across-the-board wage increases that labor unions strongly advocate. They explicitly state that wage increases should be reflected in bonuses and lump-sum payments, specifically for companies with strong performance.

Households are seeing their take-home pay stagnate due to rising oil prices and the abolition of the fixed-rate tax cut, effectively meaning a net tax increase. It is only natural that the feeling of economic recovery is weak. We can expect 2008 to be a year of continued economic sluggishness. It is crucial that we do not neglect the effort to calmly and carefully assess the future outlook.