Japan wage growth gathers steam as reluctant retailers raise pay

LIFE

22/01/2025 02:12

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      Major retailers promise big pay rises to retain workers
    

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      Wage momentum gives BOJ more leeway to raise interest
rates
    

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      Doubts persist about sustainability, impact of big pay
hikes
    

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      Higher labour costs are eating into retailers' profits
    

  
    By Makiko Yamazaki and Kentaro Sugiyama
       TOKYO, Jan 22 (Reuters) - Japan's retailers, typically
among the most tight-fisted of employers, are offering big pay
increases for a second year in a row, meaning squeezed profits
for companies, more spending money for workers, and a green
light for more central bank rate hikes.
    Japan's labour-intensive service sector had long managed to
avoid making big or sustained pay raises, by tapping a vast pool
of part-time, lower-paid retirees and housewives.
    But that began to change last year as a rapidly shrinking
working-age population and rising inflation made it harder for
retailers - who employ 10% of Japan's workers - to attract and
retain staff.
    Their acquiescence to successive wage hikes, marking a
breakthrough among low-wage service businesses and small
manufacturers, has not escaped the notice of policymakers,
including central bankers keen for signs that wage growth is
taking hold after 25 years of stagnation.
    "There was a lot of positive talk on the wage outlook," Bank
of Japan Governor Kazuo Ueda said at a gathering of regional
bank executives last week, referencing a meeting of BOJ branch
managers the week before.
    The central bank has predicated its latest cycle of interest
rate hikes, including another expected at a policy meeting later
this week, on a sustained "virtuous circle" of higher wages that
support higher prices, for services as well as for manufactured
goods.
    UA Zensen, a group representing retail, restaurant, textile
and other industry unions, is seeking wage hikes of 6% for
full-time workers and 7% for part-timers for 2025, outpacing the
baseline 5% target set by Rengo, the nation's largest union.
    Talks over 2025 wage levels typically conclude around March,
and go into effect up to a few months afterwards.
    "Solid wage hikes will help put the Japanese economy on a
growth track," said Tamon Nishio, UA Zensen's general secretary.
    "Many of our union members are from small and medium-sized
firms and are part-time workers. We want wage hike momentum to
spread broadly to our members to achieve real wage growth and
create a positive cycle for the economy."
    Economists and executives, however, point to a number of
doubts and potential downsides with this momentum, including
rising costs for retailers and uncertainty whether workers would
be willing to spend their windfall.
    "The big pay hikes will boost our cost burden," Takaharu
Iwasaki, president of Japan's largest food supermarket chain
Life Corp  8194.T , told reporters.
    "But with competition to hire and retain workers
intensifying, we want to reward them with solid pay."
    The company is targeting wage hikes in 2025 similar to the
previous year's 5% for regular employees and 6% for part-timers.
    Retail conglomerate Aeon  8267.T  is also considering
raising hourly pay for the group's 420,000 part-timers by 7%,
the same pace as last year.
    "We want to continue raising pay mainly for part-timers as
we did last year and the year before," Executive Officer
Motoyuki Shikata said on an earnings call on Jan. 10.
    "We're hearing from field managers that pay hikes over the
last two years have helped hire workers."
    
    DOUBTS AND DOWNSIDES
    These wage increases are beginning to make themselves felt
in retailers' bottom line.
    At Life, labour costs rose 7.9% and net profit fell 3.4% in
the nine months through November. Aeon slipped into a net loss
in the same nine-month period, with wage hikes increasing its
labour costs by 42.7 billion yen ($270.6 million).
    The retailers have had little choice, as Japan's working-age
population continues to shrink from its peak of 86 million
marked in 1995. A government think tank projects the population
between the ages of 15 and 64 will drop about 20%, to 62
million, in the two decades through 2040. The pool of potential
part-time female and older workers is also shrinking.
    Additionally, there are doubts as to whether wage increases
would translate into higher spending, especially with inflation
tending to outpace wage growth. Without higher spending,
companies would find it difficult to raise prices.
    "Retailers are raising wages to retain workers, but it's
questionable whether they can keep doing so beyond this year,"
said Shinichiro Kobayashi, principal economist at Mitsubishi UFJ
Research and Consulting.
    "Consumers did accept a certain degree of post-pandemic
price hikes at retailers. But there are emerging signs they are
getting tired of unabated price rises and shifting to discount
stores for shopping," he said.
    Indeed, workers do not appear to be in a spending mood.
    "Our cost-saving mindset is so strong, I don't think higher
pay would change people's spending pattern that much," said
Miwako, a part-time worker at a major supermarket chain in Tokyo
who asked to be identified only by her first name.
    She said that, while she is hopeful her pay will keep
rising, she would plan to save any pay raise rather than spend
it.

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Japan's employment conditions    https://reut.rs/4g40i2L
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 (Reporting by Makiko Yamazaki and Kentaro Sugiyama; Additional
reporting by Ritsuko Shimizu; Editing by Edmund Klamann)
 ((Makiko.Yamazaki@thomsonreuters.com;))