Human Resource Management/Pay and Appraisal Systems of Japan – Part 3

December 18,2023 [No.116-2023]

Hiroyuki KIKUYA
Prime Consultant Co., Ltd.



Will wages really rise higher than prices in 2024?

The combination of cost-push inflation caused by a global increase in resource prices and the labor shortage brought by aging population is causing deep, significant changes in employment and human resource management in Japan.

As I mentioned previously, Japanese companies produced the highest wage hike in 30 years in April 2023. Still, the pace of price increases is exceeding that of wages, creating a net negative and making life hard for workers. Bringing wages and other disposable income above prices requires making bold capital investment, improving productivity by moving workers to growth fields, properly reflecting soaring raw material and labor costs in the prices of products and services, and efforts by the companies that are creating the funds for raising wages.

As for those efforts, securing the funds for increasing wages is more difficult for SMEs that cannot easily transfer costs to prices than for large market-dominating corporations.

To address this situation, the Japanese government held a government, labor, and employer conference in November with leaders from the economic community and labor organizations to exchange ideas. Prime Minister Kishida requested cooperation in “raising wages above this year’s level,” and Masakazu Tokura, chairman of the Keidanren (Japan Business Federation), also commented that, “[we must] aim for a higher level than this year, at the very least.”

On the government side, with a special focus on helping medium-sized companies and SMEs raise wages, the Fair Trade Commission produced guidelines on price negotiations for the appropriate transfer of labor costs. In addition, the administration is pushing measures to support labor-saving capital investment and aiding job transition of middle-aged and older workers through reskilling, for example.

The government’s plan for coping with the labor shortage is to consider replacing the existing Technical Intern Training Program for foreign nationals that prohibits job changes with a new foreign trainee program (name undecided) that eases restrictions on changing workplaces, thus preparing to expand acceptance of foreign workers in the labor market.

So, what is going to happen in employment and human resources at Japanese companies?
According to a survey on important corporate management issues compiled by the Japan Management Association in August 2023 (with responses from personnel managers at 596 major companies), the highest priority issue in the organization and human resources domain was forming and executing a personnel strategy linked to management strategy (34.2%). Revising the human resource, evaluation, and benefits system came second (32.2%) and reforming workplace culture and attitudes came third (30.0%).

Boosting earning power and maintaining a continuous wage increase within an aging population requires recognizing personnel as valuable capital, maximizing its value, and achieving human capital-focused management that will lead to an increase in the value of the company. This is difficult to accomplish with current sluggish human resource management systems and workplace culture, and the survey shows that more and more companies are recognizing the urgency of revising their human resource management system and reforming their workplace culture.

Narrowing the focus to only SMEs with fewer than 300 employees, securing good workers leaps to the top (38.4%), followed by improving the management skills of middle-management (29.7%). SMEs that are worried about securing personnel should also act quick to raise wages, but simply raising wages alone is not enough. The question is how to stimulate personnel growth and contribution to match wage increase investments and achieve more advanced styles of work.


***Some of the contents of issue 104 contained errors, which are corrected as follows.
In line 10, sentence,
Error: This was the sharpest increase in almost 40 years—in fact until February 2022, consumer price increases had been in the zero range.
Correct: This was the sharpest increase in almost 30 years—in fact until February 2022, consumer price increases had been in the zero range.