Date
26 September 2017
The shift is likely to benefit  Japan’s younger workers, which could lead to increased household spending. Photo: Bloomberg
The shift is likely to benefit Japan’s younger workers, which could lead to increased household spending. Photo: Bloomberg

Japan Inc shifting to merit-based pay

Top Japanese companies are moving away from seniority-based pay into a merit system.

Companies such as Toyota, Hitachi and Panasonic are joining others in shaking up the country’s labor market in response to reform calls by Prime Mnister Shinzo Abe, the Financial Times reported Wednesday.

The shift is likely to increase the pay for Japan’s younger workers, which could boost household spending, aiding the country’s economic recovery.

Japanese companies began introducing merit-based pay and promotion from the 1990s but age has remained a significant factor, leading to lifetime employment and hampering the development of an open, fluid labor market.

The changes began to accelerate after Abe last year called for reform to pay structures to improve labor efficiency, in addition to asking companies to raise wages.

Japan’s inflation-adjusted real wages fell 4.3 per cent in November, down for the 17th straight month.

With spring wage talks kicking off this week, economists say the effort underscores the challenge Japan Inc. faces in trying to stem labor costs while answering  Abe’s calls to lift wages and raise expectations of inflation.

Hajime Ohta, a professor at Doshisha University, said raising the pay for the younger, cheaper workers “will give the image that the company is generous to employees while also appearing to cooperate with government policy”.

“It’s also a move to control labor costs”, Ohta ‘said.

Despite a recovery in earnings on the back of a weaker yen, many companies are still reluctant to carry out across-the-board wage increases, especially since it is difficult for Japanese executives to cut pay when economic conditions deteriorate.

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