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Big companies in Japan are giving their workers the pay raises they asked for. Some companies are even giving more than what was asked.
Suzuki, Toyota, and Honda, among others, agreed to give raises. Those in the retail and food service are also increasing wages. However, it's still not clear if small and midsize companies will follow suit.
Because wages were low, people were saving more and spending less. Now that many will be receiving a pay raise, it's expected that people will start spending more.
Teaching notes
Background information for your discusssion:
- Shunto: The wage negotiations in Japan are known as shunto or “spring wage offensive”. These negotiations occur every March and set the tone for employees’pay in the new fiscal year.
- Influence: The outcomes of these negotiations also influence wages at smaller firms that employ 7 out of 10 Japanese workers.
- 2023 negotiations: In 2023, labor unions in Japan won the biggest pay hikes in 30 years. The average monthly pay hike, including increases in pay scales and regular wages, stood at 3.70%, or ¥11,1143.
- Union demands: In the shunto negotiations, 4,248 labor unions demanded pay increases. Of those, 2,290 have concluded their negotiations, with about 60% winning pay scale increases.
- Company response: A total of 62.1% of companies in Japan raised or planned to raise base pay in 2023. This was up sharply from 38.7% the previous year.
- Inflation: The wage hikes were in response to rising inflation in Japan. The country’s inflation rate in 2023 was around 2.6% to 3.33%, which was the highest in almost a decade.
- Economic growth: Japan’s real GDP grew by 1.3% in 2023 and was projected to grow by 1.1% in 2024. The growth was mainly driven by domestic demand.
- Impact on economy: Steady wage hikes are crucial to kick-starting domestic demand and keeping inflation sustainably around its 2% target. The outcome of the wage negotiations will have a huge influence on how soon the Bank of Japan can end ultra-low interest rates.
Discussion
Why are companies giving raises now?
How will these raises affect the economy?
In your opinion, will small and midsize companies also give raises? Why or why not?
Would you advise people to spend or save more when they get a pay raise? Why?
If you could implement any changes in your economic policy, what would you change?