Japan: Economics in Everyday Life

14. How Do Workers Get Paid?

14 How Do Workers Get Paid? Naoki Mitani A midsummer visitor to Japan will be impressed by the throngs of people in boutiques and department stores shopping for presents. Japanese shoppers are observing their custom of buying midyear gifts for customers, supervisors , and others of higher rank to show their appreciation (see chapter 4). Shoppers also spend a lot of money buying things—especially big-ticket items—for themselves. Travel agencies do a booming business selling package tours to domestic and foreign destinations at peak-season prices. This frenetic shopping just happens to coincide with the time of year when Japanese workers receive one of their large semiannual bonuses. They can expect to receive another large lump-sum bonus at the end of the year, and for many there is also a somewhat smaller bonus in March. Many American workers also receive bonuses from their employers , typically at the end of the year. What’s different in Japan is the large size of the bonus (relative to total compensation ) and the regularity of payment. Japanese workers have come to regard their biannual lump-sum bonuses as part of their regular pay. 99 In addition to bonus payments, the Japanese compensation system has two other striking features: a wage profile that rises steeply with a worker’s age, and lump-sum retirement payments . But to understand how Japanese workers are paid, you have to look beyond the individual components of Japanese pay to examine the entire compensation system. Regular Earnings A typical worker in firms with five or more employees received a monthly salary of 277,000 yen (about 2,770 U.S. dollars) in 1994. In addition, the worker received bonuses (summer and winter) amounting to a total of three-and-a-half months’ salary, or about 971,000 yen (9,710 U.S. dollars). The monthly regular salary includes regular earnings (wages or salary) plus overtime . Regular earnings include the base wage and various allowances for commuting, dependents, and so on. These allowances were introduced just before World War II, when the government mobilized the economy for war and froze both wages and prices, and the corporations sought some flexibility by giving allowances to their employees. Employers were reluctant to increase the base wage, preferring the additional allowances ; the unions were only concerned about total compensation , not by how it was divided. Today, wages are determined through collective bargaining each spring between employers and labor unions. Shunto - (Spring Offensive) Most Japanese labor unions are enterprise or company unions and include both blue- and white-collar workers. To increase their collective bargaining power, enterprise unions affiliate with industrial federation unions which, in turn, affiliate with 100 Japan: Why It Works, Why It Doesn’t national organizations. The largest of the national organizations is Rengo, the Japanese Trade Union Confederation, with 7.9 million members, representing 62 percent of all organized workers. In 1955, workers in some industries began to coordinate their collective bargaining in the spring. This practice of coordinated labor contract negotiations during the spring of each year, or shunto - (Spring Offensive), has survived to this day. The shunto system establishes an annual cycle corresponding to the Japanese fiscal year for both businesses and the government. The Spring Offensive is usually led by unions from the four heavy industries —iron and steel, ship-building, automobile, and electric machinery—which are affiliated with the Metal Workers Federation . Through these negotiations, the major corporations determine wages for the following year. These settlements also set the pattern for agreements in other industries. Agreements in the private sector are followed by wage adjustments in the public sector. The government also adjusts the minimum wage and public utility fees in line with the new agreements. The shunto - system yields a number of economic benefits. First, the predictability of the cycle makes it easier for businesses to make forecasts and management decisions. Second, synchronization of wage settlements lessens the risk that a firm might lose market share due to a protracted labor dispute if negotiations were conducted company by company. Third, the shunto - system reduces total bargaining costs since wage settlements at the leading corporations set the pattern for smaller companies. Moreover, because these major companies also compete in international markets, the settlements are consistent with maintaining Japan’s global economic competitiveness. Finally , shunto - allows management and labor to share information on where their companies and the macroeconomy are heading. It has also...