Analysis – As inflation bites, Japanese PM finds unlikely ally in unions

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TOKYO: As Japan faces inflation for the first time in decades, Prime Minister Fumio Kishida is extending a rare olive branch to unions, which he sees as crucial to his wider drive to increase household wealth.

Pay stagnation has plagued Japanese workers for years, as the country has been mired in a deflationary mentality that has prevented companies from raising salaries, and weakened unions shy away from demanding more wages.

As part of his “new capitalism” platform to broaden the wealth distribution, Kishida has urged companies to raise wages and give households purchasing power to tolerate higher prices.

He also approaches unions for help in achieving what other countries would disapprove of: a spiral of rising inflation fueling strong wage growth.

In January, Kishida became the first prime minister in nearly a decade to attend a New Year’s Eve party held by Rengo, the main umbrella union, in a rare gesture to organized labor by the head of the pro-business Liberal Democratic Party.

At the event, he called for union assistance in achieving “a bold reversal of the downward trend in wage levels of recent years” and “wage increases befitting an era of new capitalism”.

In June, he made an equally rare visit to the Toyota Motor Corp factory in what some politicians saw as an attempt to court union votes.

The attempt to bridge some of the gap between unions and government illustrates the depth of Japan’s economic woes and has, at least for now, put Kishida on the same side as organized labor by advocating higher wages.

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Grabbing THE MOMENT

Japan’s recent union history is not spectacular.

Most unions are internal organizations that represent employees in their company, rather than on an industry basis. As such, they tend to prioritize job security over pay.

Now, however, the conditions for higher wages seem to be falling into place in a way never seen before in deflation-prone Japan.

The labor market is at its tightest in decades and inflation exceeded the central bank’s 2 percent target for the first time in seven years, putting pressure on companies to raise wages.

By shedding its image as a counter-force to a pro-corporate government, unions are also warming to the government as they seek ways to put their ideas into practice beyond relying on a weak, fragmented opposition.

Rengo head Tomoko Yoshino attended a ruling party meeting in April as a sign of support for its work style reform policies.

“It’s true that some of Kishida’s proposals fit into ours,” such as steps to reduce income inequality, said Hiroya Nakai, an executive at the Japanese Association of Metal, Machinery and Manufacturing Workers – a small-manufacturer’s union.

“Sometimes it is necessary to make proposals to the ruling party,” he said.

The relationship between Kishida and unions contrasts with that of many other countries, where governments see current demands for wage increases as a risk that could lead to unwanted inflation.

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It also highlights Japan’s unique situation where a tight labor market does not necessarily lead to broad wage increases.

Average wages in Japan have barely increased since the early 1990s and were the lowest of the G7 developed countries last year, according to OECD data.

Wage growth in Japan lags behind major competitors: https://tmsnrt.rs/3ORu2md

Japanese average wages ranked lowest among peers in 2021: https://tmsnrt.rs/3Bkyt5x

There are signs of change as a rapidly aging society exacerbates labor shortages. Companies have agreed with unions to raise average wages by 2.07 percent this fiscal year, compared to 1.78% last year to mark the biggest increase since 2015, Rengo estimates show.

With inflation rising above 2 percent, unions are gearing up to demand even higher wages next year.

“We must remember that inflation is accelerating and pushing real wages into negative territory,” said Akira Nidaira, an executive at Rengo. “The key is whether Japan can finally eradicate the public’s deflationary mentality.”

DEFLATION IS OVER

However, many analysts doubt unions have the teeth to demand wage increases large enough to offset rising inflation, and see the changing nature of work undermining such efforts.

“The Japanese labor market is diversifying and raising questions about the relevance of unions,” said Kotaro Tsuru, a professor at Keio University. “If they stick to their traditional focus on protecting the jobs of permanent workers, their fate is sealed.”

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As the Japanese labor market tightens, job security has become less attractive for younger workers who switch employers more often than their older counterparts.

By following global trends, long-term union membership has declined. It reached 16.9 percent in 2021, hovering near an all-time low and well below 30.5 percent in 1982.

“I don’t think unions are playing their part. Wages aren’t going up as much as I’d hoped,” said a 25-year-old worker at a major Japanese manufacturer and an internal union member.

“Unions may be helpful one day, but on a day-to-day basis they don’t seem to be proactive,” said the employee, who spoke on condition of anonymity due to the sensitivity of the case.

Also against unions, nearly 40 percent of workers are now irregular workers and are usually not protected by unions.

While some unions now allow non-regular workers to join, most still give priority to permanent workers.

“Unions have not adapted to the changing needs of the younger generation,” said Hisashi Yamada, senior economist at the Japan Research Institute.

“Accustomed to prolonged economic stagnation, they seem to have forgotten how to demand wage increases,” he said. “That must change now that the era of deflation and disinflation is over.”

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