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Issues for the Spring 2008 Shunto Wage Negotiations Against a Backdrop of Sluggish Wage Growth
- Transforming the Structure of Distribution of Business Profits with a View to Sustained Growth -

December 14, 2007

Major Points

Since the beginning of 2007, wages have been softening. One reason that wages have seen little or no growth among large companies is that the labor share has been declining. The main reason for the softening of wages among small and medium-sized companies is the "stagnation of productivity". The inadequacy of the wage increases given to non-regular employees, who have become a core element of the workforce, has also been a factor.

Recently, the labor share has been falling in terms of the macro balance, and if no remedial action is taken, there is a risk that this will lead to (i) a fallacy of composition, whereby the curbing of wages leads to a fall in consumption, which in turn leads to a fall in sales, leading to the deterioration of the economy, the deterioration of profits, and so on, and of (ii) a decline in worker morale and a long-term decline in the competitiveness of enterprises due to insufficient investment in human resources.

The Shunto wage negotiations in the spring of 2008 should focus on increasing the basic level of wages with a view to the sustained growth and development of the Japanese economy and Japanese enterprises, and on presenting a medium-term vision for a review of the structure of the distribution of business profits. The three keys points are likely to be (i) the revival of "productivity standards", (ii) the creation of new rules for the distribution of business profits to replace "pay-scale increases" and (iii) an agreement on points (i) and (ii) between all three sectors concerned (government, labor and business).

For more information on the content of this report, please contact Hisashi Yamada, the Japan Research Institute, Limited.

Tel: 03-3288-4245

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