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Japan's Kishida urges companies to raise wages 3% or more

Prime minister aims to achieve cycle of growth and wealth distribution

Japanese Prime Minister Fumio Kishida speaks during a "new capitalism" panel meeting on Nov. 26. (Photo by Uichiro Kasai)

TOKYO (Reuters) -- Japanese Prime Minister Fumio Kishida on Friday urged companies whose earnings have recovered pre-pandemic levels to raise wages by 3% or more at their labor talks next spring, aiming to achieve a virtuous cycle of growth and wealth distribution.

Kishida told his "new capitalism" panel meeting that the government would take steps to raise incomes of welfare workers such as childcare workers, nurses and caregivers by 3% continuously.

With recovery in the world's third-largest economy remaining uneven among sectors, Kishida vowed to help small firms pass on costs of raw materials, energy and labor costs to customers.

Kishida has made tackling wealth disparities and redistributing wealth a political priority, making wage hike proposals as part of this strategy and helping to ease the pain on consumers from rising oil and food costs.

"I expect that, at next year's labor talks, those companies whose profits have recovered to pre-corona levels will raise wages by 3% or more to kick-start new capitalism," Kishida told a panel meeting. "The government will do the utmost to prepare an environment to back wage hikes among the private sector.

Major Japanese companies and labor unions have agreed on wage hikes of 2.18% in 2019, 2% in 2020 and 1.86% this year.

"I want to reverse the trend of lowering wage hikes," Kishida added.

It was the first time the government would set a numerical target for businesses on wage hike levels in four years.

Many companies have kept wage growth low to protect jobs and weather the hit from the coronavirus pandemic. It was unclear whether companies would heed a request for voluntary wage hikes, even if the proposal were made.

"With economic uncertainty heightening, companies will be quite cautious about raising wages," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"It will be pretty tough to achieve a 3% wage hike as the economy isn't recovering as strongly as the government had expected."

Former Prime Minister Shinzo Abe had little luck boosting wages despite repeated requests for businesses to pass on huge profits they earned from his "Abenomics" stimulus policies.

In last year's wage negotiations to set salaries for 2021, Japanese firms offered the lowest wage increases in eight years as the pandemic hurt corporate profits.

Slow wage growth has been among the factors that have kept the Bank of Japan from hitting its 2% inflation target, as it saps households' purchasing power and discourages companies from charging more for their goods.

Part of efforts to prop up a still-stagnant economy, Japan unveiled last week a record $490 billion spending package, bucking a global trend towards withdrawing crisis-mode stimulus measures.

The package included funding to increase government-set wages for nurses and social care workers by 3%.

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