Japan's efforts to raise wages wane as firms embrace merit-based pay
Japan Today -- Feb 13
More Japanese companies are shifting to merit-based pay as competition for workers heats up, but the change risks holding back the sort of blanket wage hikes the prime minister says are needed to inflate the economy.

Ahead of annual labor talks set for March 11, the momentum to agree broad wage rises is waning as the focus shifts to merit-based pay scales. Bellwether auto giant Toyota Motor Corp's labor union is no longer seeking blanket pay rises, likely prompting others to follow suit.

It could give Japanese firms the excuse not to boost overall labor benefits, with many wary of fixed costs as profits are seen squeezed by Sino-U.S. trade tensions, the new coronavirus outbreak and global slowdown.

For workers, the shift would boost salaries of younger workers and potentially widen the country's wage gap.

Prime Minister Shinzo Abe's government has been pushing for a more flexible labor market that would boost wages and revive consumption, but ironically, firms have also been asked to keep offering blanket pay rises.

"The momentum toward base pay hikes is waning, while the October sales tax hike has added a burden on households. Declines in company profits are also casting a chill over the wage-hike mood," said Masaki Kuwahara, senior economist at Nomura Securities.

Sluggish wage recovery bodes ill for private consumption and the central bank's aim of hitting its elusive 2% inflation goal.

"Japanese firms no longer see the point of doing what everyone else does to raise wages in unison," said Hisashi Yamada, senior economist at Japan Research Institute. "As Abe's campaign on wage hikes runs its course, wages will struggle to rise ahead."

Some 57.8% of Japanese firms have adopted merit-based pay as of 2018, up from 17.7% seen in 1999, data from Japan Productivity Center, a non-governmental organization, show.

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