More and more companies reexamine their annual wage increase system

In past issues, we predicted that this year's spring joint labor negotiations would see many labor unions dropping their demands for basic wage increases. We also discussed the possibility that management would think about reexamining the annual wage increase system that has thus far been considered a "sanctuary." This is fast translating into reality.

It appears that a situation is emerging that may compel Japanese business to transform its longstanding employment system premised on the seniority wage structure and the lifetime employment system.

Japan's wage system is founded on annual wage increases and basic wage increases. If the latter is eliminated, a company's payment burden will remain unchanged, provided the makeup of employees does not change from the previous year. Moreover, if the former is reduced, a company's financial burden will be alleviated.

Management asserts that Japanese workers' wages remain at higher levels than seen in most other countries, hampering companies from boosting their international competitive edge. With workforce curtailments continuing to proceed, and under the present conditions of high unemployment rates and persistent deflation, it appears that labor is so desperately concentrating on protecting employment that it has no extra energy left to develop in other directions.

Looking at so many companies rushing to reexamine their annual wage increase systems, we are given the impression that management may be exploiting the current situation.

As yet, few companies have actually decided to tear up the traditional contract with their workers, and it is highly unlikely that a system that Japanese businesses have worked over the years to establish will be jettisoned overnight. Still, things are progressing at an alarming speed.

Progress on important issues that were planned to be discussed at this year's spring joint labor negotiations, such as realizing equal treatment between regular and non-regular employees and building a social safety net, for example, seems to have stalled somewhat in view of this looming threat.