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Gov't considering asking companies to raise wages again next year

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Prime Minister Shinzo Abe’s government has nudged major companies into raising wages for the past two years in the spring...

Somehow six sentences after that came this:

Real wages fell 2.9% year-on-year in June

This isn't bad reporting, its actually quite accurate reporting as it presents the precise thinking of the government and business. On the one hand there's a claim to have raised wages, but on the other is the very apparent reality they either haven't done enough or haven't done it at all.

If the government wants to "nudge" businesses into paying more, they can do so very easily by raising the minimum wage, which can be as low as 677yen in many prefectures (that's $5.40) to something that people can actually live off of. Make it 1000yen (which is still 20-30% less than most OECD countries) and you will see a ripple effect on the majority of wages move right up from the bottom.

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Prime Minister Shinzo Abe’s government has nudged major companies into raising wages for the past two years in the spring with a series of meetings with major business lobbies and labor unions.

Instead of this spineless "nudging", RAISE the minimum wage across the country. If you can reinterpret article 9, raise the consumption tax on the people, and get the BOJ to intervene to weaken the yen and raise prices across the nation you can at least raise the minimum wage. Grow a pair.

This strategy has also drawn criticism that the government is intervening too much in the private sector.

Didn't hear that complaint when he devalued the yen.

Real wages fell 2.9% year-on-year in June, which was the fastest pace of decline in seven months.

Real wages have been falling for a long time. We are all MUCH poorer now than we were 10 years ago.

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I should also mention that the minimum wage was raised last October by a whopping 13 yen on the low end (from 664 to 677) in about 15 prefectures, which represents a 1.9% increase, and on paper and in the conference room that seems in par with the economic policy of 2% growth. However, it fails at confronting reality, since I believe those people making these policies have little grasp about the life of the vast majority of Japanese and the true cost of living (and ignores that its still 35% less than the mandatory 3% rise in all costs the installed last year with the consumption tax rise).

And it should also be noted that there is a plan to again raise the minimum wage in the works for this year, but its an equally pathetic 'average' of 18yen, which would mean as low as 12 or 13 for the bottom end prefectures.

From JapanTimes a couple weeks ago: "Labor unions initially sought an increase of some ¥50 in line with price trends... By contrast, employer representatives claimed that an increase in the minimum wage should be limited to around ¥10"

So when the unions aren't even pushing for a living wage, don't expect it to jump into reality anytime soon.

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Instead of this spineless "nudging", RAISE the minimum wage across the country.

And when wages are raised, unemployment will increase as businesses will have to cut hours or jobs to compensate, and things will be even worse. Wages are determined primarily by the market. 70% of Japanese companies reported a loss last year, so it's rather obvious they have little money to pay higher wages.

-6 ( +2 / -8 )

The Japanese government is considering pressuring companies to raise wages again

What's to consider, if that's the sort of failed central planning style policy you want to pursue? Just do it, and show you can execute, at least.

Voices are now growing within the government to use the same tactic for next year’s wage negotiations, the sources said, after data this week

So the crappy tactic resulted in crappy economic data last time. Conclusion? Try the same thing once again.

What else would you do?

This strategy has also drawn criticism that the government is intervening too much in the private sector.

No kidding. It's 2015, you'd think people would look at such failed policies which almost don't exist any where in the rest of the world now, and laugh at the suggestion of trying them in Japan.

The government is also considering a new forum with private-sector companies to encourage more capital expenditure, the sources said

Central planning failed last century. Get with the program, Japanese government.

2 ( +5 / -3 )

How about creating more schools, it's a lotto to get into a school in Tokyo, I'm not joking, but there are unlimited hospitals!

Schools, create jobs! Teachers, workers, cleaners, building, programs,, parents (both) able to work, more children = more food sold, more clothing sold, more presents... heck... more people to tax... it's almost obvious the need to raise the population instead of putting a gun to the back of companies.

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sangetsu03,

Quite right. The government dictating what businesses should pay is a backwards approach, treating the symptoms rather than the cause.

First, to get companies to pay wages, the way to force them to do it is to improve the business environment so much that businesses will have to jump over each other to hire staff who have the skills they need in order to operate. Second, people on the minimum wage can get more money by obtaining more skills and thus able to offer higher value labour.

This is called progress.

Giving people something for nothing results only in everyone becoming poorer together.

3 ( +4 / -1 )

Wages are determined primarily by the market. 70% of Japanese companies reported a loss last year, so it's rather obvious they have little money to pay higher wages.

What is obvious is that somebody has no concept of either economic rent or, sorry for the big words, the fallacy of composition. Japanese corporations have record profits and record cash holdings (and don't bother screaming back that they don't, it's all documented and common knowledge), and they get those in large part by paying people less than the value of their work (economic rent). As for the smaller companies which report a loss, that is because their customers don't have enough money. While it makes sense for one company to try to hold down wages, in the aggregate it means lost profits for every company (fallacy of composition), aka the paradox of thrift. Spending = Income, and with falling real wages people have less to spend. Seriously, this is basic, basic stuff, but don't let that interfere with your ideological fantasy world.

What's to consider, if that's the sort of failed central planning style policy you want to pursue?

There is nothing about running the capitalist system efficiently that is "central planning". Free market theory is based on the idea that people operating in their self-interest makes for the most efficient and prosperous economy. It also assumes people are not so thick they are unable to understand what is in their self-interest. Businesses who shout "I don't want my customers to have any money" is pretty clear evidence that people are too thick for the system to work as advertised.

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These days many companies complain of labour shortages, but many of those companies pay the minimum wage and have low productivity. The minimum wage should be increased until the number of available jobs better matches the number of people seeking work. To combat stingy companies corporation tax should be increased and the proceeds used to lower payroll taxes.

These measures will increase wages and drive inefficient companies out of business whilst boosting the economy without additional borrowing and wasteful government spending.

Abenomics cannot and will not work.

-1 ( +1 / -2 )

As @Guy_Jean_Dailleult pointed out, its a fallacy to merely say forcing the raise of wages means greater unemployment and/or number of hours offered since "wages are determined primarily by the market." Yes, that is correct, but look at how 'the market' functions:

-all companies (that is, the employment 'market') strive to make as much profit as possible, and therefore that means pay as little as possible. This is in both good times and bad.

-regardless of wage increases, companies (again, 'the market')are constantly trying to offer the fewest hours possible and hire the least number of workers. This is efficiency, and if a company is not practicing it, then they deserve to fail, as prescribed by 'the market'.

-when prices are forced (through tax and currency devaluation) to increase and the wages offered do not match this rate of increase, then people will have less to spend, and therefore companies will have fewer sales and less profit (so 'the market' suffers). So the lack of wage rise is creating the lack of profitability in this case, not the opposite.

So companies complaining that they can't afford wage increases would need to charge more for their product/service (as in the goal of Abenomics) And if a company can't do so, they collapse. Isn't this all the reality of 'the market'?

And by the way @sangetsu3 -"70% of Japanese companies reported a loss last year". Accountants work rather hard to achieve this in most cases since it means they paid no tax. But what it doesn't mean is that the employees did not get paid, nor does it mean the boss didn't get his huge salary.

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Voices are now growing within the government to use the same tactic for next year’s wage negotiations

Oh yeah, because it's been a runaway success thus far!

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Japanese corporations have record profits and record cash holdings (and don't bother screaming back that they don't, it's all documented and common knowledge)

Funny, my friend's company had record market cap recently due to high stock prices. When Chinese stocks went south recently, 25% of the value of his company vanished in two days. If this happens again, as it is certain to, companies will need very bit of cash they have. The fact remains that the majority of Japanese companies have not earned any profit, and most Japanese people work for these companies. This is well-documented, and is common knowledge.

Unlike many Japanese companies, my company earns a profit, yet I am not sitting on record amounts of cash. As a long--time business owner, my economic experience is first-hand. Unlike you, I have employees whom I am responsible for paying. I pay what I can afford to pay, if I have to pay more, I will have to hire less.

-2 ( +2 / -4 )

"...it's all documented and common knowledge" "This is well-documented, and is common knowledge."

Come on guys/gals. Both of you cannot be right. I did a quick search and found this: "Japanese companies are headed toward their highest profits ever" from Bloomberg which cites Toyota, Fuji, Mazda, and Fast Retailing. Or can both of you be right?

Isn't it the big international exporters that are profiting? Where does that leave other Japanese industries? Also, now - I know nothing about economics but - isn't monetary easing a kind of short-term trick? Where does that leave other parts of the Japanese economy? Without structural changes, can monetary policy deliver a future for the next generation? Won't the economy just continue to shrink as population falls and where will that leave the economy in the long-term? Japanese management operates inefficiently. If business practices are conservative and generally inefficient, aren't we in for a few decades of doldrums until change is forced by hitting rock bottom?
1 ( +2 / -1 )

Funny, my friend's company had record market cap recently due to high stock prices. When Chinese stocks went south recently, 25% of the value of his company vanished in two days. If this happens again, as it is certain to, companies will need very bit of cash they have. The fact remains that the majority of Japanese companies have not earned any profit, and most Japanese people work for these companies. This is well-documented, and is common knowledge.

GJD is absolutely correct. Why is Sangetsu shifting goal posts and starts mentioning market caps of his friends company?? Talk about meaningless anecdote.

This was discussed already.

http://www.japantoday.com/category/quote-of-the-day/view/aside-from-the-devaluation-of-the-yen-and-modest-efforts-to-improve-corporate-governance-the-government-has-done-little-to-remake-the-economy-plans-to-encourage-startups-loosen-labor-markets-cut-r#comment_2016322

As to your repeated fallacy of "70% of companies reported a loss", this is 70% of companies who were not subjected to corporate tax which does not mean that the company did not earn a profit. Whether this comes in a form of carryover loss or special exemption, Japan does not have a sub chapter S type corporation law that U.S. has. As the below link indicates, the percentage of 'regular' corporations that were not subjected to corporate tax were in the same line as U.S.

普通法人ベースで見ると、米国も欠損法人割合が70%となり、日本と類似する(2010年 利益法人:50万社、欠損法人:117万社)【添付9】。

http://www.keidanren.or.jp/policy/2014/035_honbun.html

I'm amazed that these so-called business operators who claim to run a business here have such limited knowledge and yet earn a living, supposedly.

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These days many companies complain of labour shortages, but many of those companies pay the minimum wage and have low productivity.

If individual companies are really short of labour, they will hike their wages by themselves. If they don't, they will fail to attract sufficient labour from the competition (if there is any) and be unable to do as much business as they would like, and thus lose opportunities to generate profits. So aggregate income earned by the workers will increase, and workers will be attracted to better paying, more profitable businesses.

Alternatively, were a blanket minimum wage hike enforced on all businesses, it'd force some low margin businesses to cut jobs in response. This means there will be added surplus labour due to the job cuts, so better businesses will find it easier to get labour, and thus reduce the incentive for them to boost wages to attract labour. The reduction of employed labour will have a negative impact on aggregate income, offsetting to some degree the increase due to the minimum wage hike. (Plus the lowest skilled people will be completely out of work.)

Central planners don't need to do anything, other than keep their meddling fingers out of it. Let market forces play out naturally. It'll produce the best outcome.

If businesses aren't hiking wages, it's because there isn't a labour shortage for that line of work. If there isn't a labour shortage, it's because business conditions are not attractive enough to stimulate demand for labour. Therefore government should focus on fixing the business environment, rather than on taking shortcuts to try to manufacture fake outcomes, which are counterproductive.

To combat stingy companies corporation tax should be increased and the proceeds used to lower payroll taxes.

Do you mean income taxes?

These measures will increase wages and drive inefficient companies out of business whilst boosting the economy

Government measures that drive companies out of business will create MORE surplus low-skilled labour, and thus put downward pressure on low-skilled wages overall, and put the lowest skilled people out of work. The government should not be in that business.

shallots,

Without structural changes, can monetary policy deliver a future for the next generation?

Dead right, it can't. This is the failure of Abenomics. Too much war-mongering from Abe recently, not enough promised structural changes and not fast enough.

aren't we in for a few decades of doldrums until change is forced by hitting rock bottom?

The time frame is questionable but that's the most plausible scenario I think.

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Gov't considering asking companies to raise wages again next year

"Considering asking"? Almost like an oxymoron. How about "ordering"? Without those stronger words, the companies will pay it lip service as usual

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"Central planners don't need to do anything, other than keep their meddling fingers out of it."

If they did that, half the world's private corporations would go bankrupt tomorrow.

The government subsidizes, bails out and grants all sorts of incentives to the private sector. Corporate welfare has never been so active. It's only right that the govt tell companies to hike wages.

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Abenomics' success! ;p

Mises was right.

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do you guys really think you understand economy better than the pro who get paid to do so don't make me laugh, abe is going the right road higher wages is the best option

-3 ( +0 / -3 )

I bet the company I work for will continue to ignore the government's call to raise salaries.

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