Prime Minister Shinzo Abe has urged the business community to offer at least a 3-percent wage hike for employees during annual labor-management negotiations on salary increases next spring. This is the first time that the prime minister has proposed a numerical target for wage hikes to the business world.
During this year's negotiations -- known as the "spring labor offensive" -- businesses increased salaries for their employees by less than 2 percent, a reduction for the second consecutive year. Prime Minister Abe has requested a higher numerical target than what companies have accomplished in an apparent bid to pressure employers to further increase employees' salaries.
Corporate profits have risen to record high levels, reflecting the weaker yen and the brisk world economy. Nonetheless, consumer spending remains sluggish because wages have not increased sufficiently, and there are no prospects that the government will achieve its goal of overcoming prolonged deflation.
Sufficient pay raises are indispensable in boosting consumer spending. Companies should proactively share some of the profits they have accumulated with their employees in the form of larger pay raises.
The government should also implement policy measures to encourage employers to increase workers' wages. The prime minister's appeals to the business community to increase salaries have obviously produced some results. Still, questions have been raised about the prime minister's prescription of a specific numerical target he wants businesses to achieve.
Wages should be determined through labor-management negotiations. Critics have pointed out that the "government-led spring labor offensive," in which the government intervenes in pay-hike negotiations, could warp the economic principle of productivity increases leading to wage rises.
Productivity and profits differ from company to company. Even though the prime minister has laid down a uniform target for businesses, companies may not be able to sustain such wage hikes if the target is more than they can afford.
What the government needs to do is to create an environment that makes it easier for businesses to offer pay raises to their employees.
Wages have not risen largely because many companies make up for labor shortages by hiring non-regular workers. In order to improve salaries for workers, achieving equal pay for equal work at an early date is indispensable. Nonetheless, Prime Minister Abe chose to dissolve the House of Representatives to call a snap general election, thereby postponing deliberations on relevant bills.
To help companies increase their productivity, it is important for the government to carry out regulatory reform to make it easier for businesses to enter growing industries. The Abe government had initially characterized regulatory reform as a key policy measure in its growth strategy, which is one of the main pillars of "Abenomics," the administration's economic policy mix. However, the growth strategy has not produced sufficiently positive results, with the government relying on the credit-easing policy implemented by the Bank of Japan and public spending on economic stimulus measures.
Prime Minister Abe said the government would implement all possible policy measures, including those relating to the state budget and the tax system, in an effort to spur pay hikes. A productivity "revolution," which the Abe administration has recently hammered out, is the pillar of these efforts. However, the revolution has just begun. If it turns out that the government has merely replaced one slogan with another, wages will not rise sufficiently even if companies are called upon to do so by the prime minister.
Rather than stepping up intervention in the private sector, the government should review the effectiveness of its past policies and the challenges they face. Only then should it steadily implement necessary measures.