Firms To Raise Salaries After 30 Years Of Stagnation

Many Japanese started their careers around 30 years ago, but their salaries have stayed pretty much the same. Companies are under pressure to raise salaries after 30 years of stagnation. In fact, in Japan, people switched careers rather than give up hoping for higher pay.

Because of this, a number of people have been forced to work more than one job to increase their income. If not, they would have to remain in the same wage cycle. Naturally, that is the norm all over the world (i.e. two or more jobs), but it is now a compulsory norm in Japan.

In Japan, a generation of workers has barely received a raise throughout their careers. The world’s third-largest economy is now confronted with the major issue of falling living standards as prices rise following decades of deflation, and businesses are under intense political pressure to pay more.

Fumio Kishida, the prime minister of Japan, is urging businesses to assist workers in meeting the rising cost of living. He urged businesses to raise wages above inflation last month, and some have already done so.

Inflation in Japan, like in other parts of the world, has become a major problem. Up until December 2022, core consumer prices increased by 4%. This is lower than in Europe or the United States, but it is the highest level in 41 years for Japan, where people are more accustomed to prices falling.

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Japan’s workers haven’t seen a rise in their nominal wages in 30 years because inflation is rapidly reducing real wages. When inflation is taken into account, Japan’s earnings dropped to their lowest level in nearly a decade thirty days ago.

According to data from the Organization for Economic Co-operation and Development (OECD), the average annual salary in Japan was $39,711 in 2021, compared to $37,866 in 1991.

This indicates that workers received a pay increase of less than 5%, in contrast to a rise of 34% in other Group of Seven economies over the same time period, such as France and Germany.

A number of factors have been cited by experts as explaining the stagnant wages. The first is that Japan has long struggled with the opposite of what it is currently facing: low costs Due to the bursting of a domestic asset bubble and a strong yen, which reduced the cost of imports, deflation began in the middle of the 1990s.

In essence, consumer price inflation has not changed over the past 20 years. Customers would not have felt the need to demand better pay or taken a hit to their wallets up until this point. According to experts, Japan’s wages have also declined due to its lag in another metric: its rate of productivity.

The experts say that “probably the biggest reason” for the flat is that the country’s output, which is measured by how much workers contribute to a country’s GDP per hour, is lower than the OECD average. In most cases, wage growth and productivity growth are inseparable. Businesses perform better and are able to offer higher wages when productivity increases.

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An additional issue was Japan’s aging population, as older workers typically translate into lower wages and productivity. Working practices are also changing. Up from roughly 20% in 1990, nearly 40% of Japan’s workforce in 2021 worked part-time or irregular hours.

Economists contend that wage stagnation is being exacerbated by Japan’s distinctive work environment. Many people work under the old “lifetime employment” system, in which employers go to great lengths to keep employees on their payroll for life.

This indicates that they frequently exercise extreme caution when it comes to raising wages during times of prosperity so that they have the means to safeguard their employees during times of difficulty. They don’t want to fire anyone. Therefore, in order to keep them on the payroll in the event of a crisis, they require that buffer.

According to prominent Japan strategist and investor Jesper Koll, “the stubborn insistence on pay by seniority is the biggest issue in Japan’s labor market.”

“More job switching and career advancement would occur if true merit-based pay were implemented.”

The new “comprehensive economic measures will include expanded support for wage increases, integrated with an improvement in productivity,” according to a government spokesperson.

The Ministry of Health, Labor, and Welfare claims that guidelines for businesses will be issued by June by Japan’s authorities.

Pay raises for employees have already begun at some businesses. More than half of the nation’s major corporations have announced plans to raise wages this year, according to a Reuters poll released last month.

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