What would be your reaction if employer says wage hikes for workers should be above inflation?

TOKYO (Reuters): Have you ever talked to your employer about wage hike? What do you expect him to say? If you did, then what was the response? Mostly, the answer is like your demand is too high, we don’t the resources, the business can’t afford it, the costs are rising.

The chances are you may get a much less pay raise if you persist and there is no replacement. In case of being indispensable for and directly linked to the profits, you will get what you want. But such cases are very far and few.

In pay raise talks at individual or group level, inflation is always the standard, as workers want to at least cover their expenditures. However, the real wages are on a decline in most of the countries around the world for an average worker.

But would be your reaction if an employer says the workers should get more than the inflation rate? You must be over the moon and dancing.

JAPAN WAGE HIKES

Actually, it has happened in a faraway land called Japan where the head of the country’s biggest business lobby Keidanren, according to Reuters, on Tuesday suggested pay raise this year that exceed the inflation rate, setting the tone for annual wage talks that may pave the way for the Bank of Japan (BOJ) to exit its ultra-loose monetary policy.

At stake in this year’s spring negotiations between trade unions and large Japanese firms, analysts say, is whether wages will rise far enough to ignite the sustainable inflation that policymakers consider a prerequisite for ending negative interest rates.

The talks are due to conclude in mid-March.

“Our main scenario is for the BOJ to confirm wage hikes at big firms and go ahead with ditching negative rates in April,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.

In an annual report on Keidanren’s management and labour policy, released on Tuesday, Chairman Masakazu Tokura said the business lobby and companies this year bear “[corporate] social responsibility to aim for wage hikes that beat price rises”.

“There’s a very strong sense of urgency that Japan’s future rests on whether we can step up a gear to achieve structural wage hikes this year and onwards,” Tokura said, adding that present conditions offer a “last chance” to end deflation completely.

The report, which serves as the basis for the lobby membership’s stance in annual talks with Rengo, Japan’s largest labour union group, also said the government and the BOJ are expected to guide policies aimed at achieving “appropriate price hikes”.

Small firms, which employ seven out of 10 employees in Japan and have a greater impact on overall wage growth, tend to begin labour-management talks after big firms wrap up their negotiations in March.

Several large firms have already said they intend to implement big wage hikes, although plans at small companies will only be known around mid-year.

While small firms tend to operate on thin margins, many also face a labour crunch, due largely to Japan’s ageing population, and have no choice but to raise wages to attract talent, analysts said.

Prime Minister Fumio Kishida, BOJ Governor Kazuo Ueda, Keidanren chief Tokura and Rengo head Tomoko Yoshino are all seeking pay raises that beat inflation, after last year’s labour talks brought pay rises of nearly 3.6 per cent, the highest in three decades.

The tighter job market, record corporate earnings and ample cash holdings at many Japanese companies have added to the case for firms to share more of their profits with workers.

Japan’s jobless rate stood at 2.5pc in November, edging close to levels not seen since Japan’s asset bubble burst in the early 1990s. November data from the Labour Ministry also showed that there were nearly 1.3 jobs for every job seeker.

While companies were hoarding 343 trillion yen ($2.4 trillion) in cash and savings as of the end of September, the ratio of wages to profits remained relatively low, analysts said, leaving room for higher labour costs.

Tuesday’s Keidanren report will be followed by a labour and management forum next week, which will kick off the wage talks in earnest.