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May 28, 2017

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Smaller Japanese firms brace for tough wage decisions next year

The Yomiuri Shimbun/Asia News Network--Though employees of many small and medium-size companies will benefit from this year's shunto spring labor-management wage negotiations, challenges have already surfaced for next year's shunto negotiations. This is mainly because of the tough decisions smaller firms had to make this time around.

This year's negotiations saw the average pay rate hike exceed 2 percent, including those for annual regular wage hikes, according to the Japanese Trade Union Confederation (Rengo).

The development can partly be attributed to Prime Minister Shinzo Abe's initiative to coordinate talks between leaders from political, business and labor union circles.

But a closer look at the result showed that in many cases, employers were forced to accept pay hike demands because of labor shortage fears or a "follow-the-crowd" mentality. Gaps in working conditions between regular and non-regular workers still remain wide.

Masayuki Nimbari, president of Nimbari Kosakusho Co., a sheet metal processing company based in Higashi-Osaka, Osaka Prefecture, said, "I really feel that the economy has been recovering." The city is known for having one of the nation's largest clusters of small and midsize companies.

The company implemented a basic 500 yen pay scale hike during spring for the first time in more than 10 years. Business conditions had been severe for the firm since the Lehman Brothers collapse in 2008, but more orders started coming in for parts for energy-saving devices after the 2011 Great East Japan Earthquake. Mainly on the strength of such orders, he said company sales are higher than before the Lehman Brothers collapse.

During the period of deflation, there were virtually no pay hikes. But Rengo demanded basic pay hikes in this year's shunto campaign after a five-year hiatus.

According to the final shunto results announced by Rengo on July 17, 1,489 companies, or nearly 30 percent of its member firms, had implemented basic pay hikes. The average figure stood at 1,426 yen, or 0.49 percent.

Of these companies, 937 are small and midsize companies with less than 300 employees each. The average pay hike was 1,330 yen, or 0.54 percent.

Though the rates did not reach the nation's inflation rate, a senior Rengo member praised the result and said, "It's the first step toward an exit from deflation," because the basic pay hikes had also spread to small and midsize firms.

But Yukio Manaka, the head of the Japanese Association of Metal, Machinery and Manufacturing Workers, a federation of labor unions of many small and midsize companies in the industrial sectors, said, "We are not that optimistic."

"There were many small and midsize companies which had no choice but to implement basic pay scale hikes in the face of other companies' moves due to fears of a labor shortage," he said.

Tohoku Steel Co., a Murata, Miyagi Prefecture-based company that produces specialty steel for car parts, implemented a hike of 1,000 yen this year after a six-year hiatus. The decision was difficult because the company had to lower prices, pressured by client companies and fierce competition with rivals in emerging countries. Profit margin rates had also been declining.

Takaaki Sato, the operation manager of the company, said: "Though circumstances are severe, cooperation from employees is essential to improve business efficiency in the future. We also have responsibility as a corporation to cooperate and work toward economic recovery, so we decided to implement a basic pay hike."

A precision equipment maker based in Kyoto Prefecture with 150 employees also implemented a 5,000 yen regular wage increase, despite a drop in company sales and profit.

An executive of the company said: "We already had a shortage of engineers. We feared our engineers would move to rival companies (if we failed to hike salaries)."

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