Nippon Keidanren to urge members to offer wage hike

The Japan Business Federation (Nippon Keidanren) likely will call on employers to offer wage increases in next year’s spring labor offensive as many major companies are raking in record profits, according to a draft position paper obtained by The Yomiuri Shimbun.

The country’s most influential business group will urge its about 1,300 member companies to funnel extra funds generated by improved productivity and falling labor costs arising from the mass retirement of baby boomers back into personnel expenses.

Nippon Keidanren’s Management and Labor Policy Committee is preparing the position paper, which will be released in mid-December after approval by its directors. The paper is nonbinding for employers, but it serves as the basis for their positions in annual wage negotiations with labor unions.

The draft paper stipulates, “A portion of an increase in added value, which has been supported by the steady improvement of productivity, shall be used as capital for revising total personnel costs [total salaries and other payments given to workers].”

“Revising the total personnel costs” apparently means “wage increase.” The draft paper says this is “to improve employees’ incentive to work” and “to secure human resources.”

The latest wording represents a change in tack over the past few years by Nippon Keidanren.

The group’s basic policy in its paper for 2005 spring labor offensive stated that “raising the wage level is difficult.” But the paper for 2006 said, “It shall be up to the management and labor of each company to make any such decision,” which could be taken to mean the organization accepted a wage increase by employers.

Its paper for 2007, however, stated, “Short-term results obtained by companies’ good performance should be reflected in bonuses and other lump-sum allowances.” This still illustrated Nippon Keidanren’s cautious recognition that an increase in company profits were rather short-term and temporary.

According to Shinko Research Institute Co., more than 30 percent of companies listed on the first section of the Tokyo Stock Exchange likely will post record current profits for fiscal 2007.

Companies should be able to trim labor costs as workers of the baby-boomer generation, who were receiving high salaries, reach retirement age. Meanwhile, an increasing number of companies are raising starting salaries to attract talented staff.

These conditions apparently prompted Nippon Keidanren to take a more positive stance toward a wage increase. This could spur labor unions to press more strongly to have their demands accepted during wage negotiations next year.

However, Nippon Keidanren’s draft still maintains its basic policy that any wage increase should be decided by the management and labor of each company. It is uncertain whether many companies will offer a wage increase because the economic recovery has yet to trickle down to small and midsize companies and regional economies, industry observers said.

“It is outdated thinking to ignore the ability of each company to pay salaries and raise the pay-scale across the industry,” states the draft paper, which also maintains that temporary improvement in business performance should be reflected in bonuses and other lump-sum allowances.

Those comments suggest Nippon Keidanren gave due consideration to the growing risk emerging in the performance of not only small and midsize companies but also large companies.

Concern over an economic slowdown has been growing in the United States, the largest importer of Japanese products, due to the subprime mortgage loan turmoil. This anxiety has been compounded by a surge in material prices caused by high oil prices, which is starting to squeeze the earnings of Japanese companies.

“There are many sources of concern for the economy, such as the yen’s rise against the dollar and surging oil prices,” said Junko Sakuyama, an economist at Dai-ichi Life Research Institute. “It’s difficult to expect that a wage increase is a foregone conclusion in next year’s spring labor offensive.”