On February 6, the Ministry of Health, Labor and Welfare (MHLW) released a preliminary report of the Monthly Labour Survey in 2023. “Total cash earnings” increased on a nominal basis for the third consecutive year, averaging 329,859 yen per month (+1.2% YoY), due in part to the impact of the “first significant wage increase in 30 years.” On the other hand, it recorded a negative growth in real terms for the second consecutive year. The decline of 2.5% (-2.5%) YoY is the second largest decrease since 2014 when the consumption tax hike was implemented. According to the Family Income and Expenditure Survey conducted by the Ministry of Internal Affairs and Communications (MIC), monthly consumption expenditure per household (two or more members) in 2023 was -2.6% in real terms, and the sharp drop in the expenditure on education shows the current situation that households in Japan have been lacking their “affordability.”

The government has pledged to “achieve higher wages than last year,” and the economic circles and associations have responded to this. In the current situation where many listed companies have revised their earnings estimates upward one after another, the trend of wage increases is also spreading to small and medium-sized enterprises (SMEs). According to the “Survey on Labor Shortages, Wages, and Minimum Wages of Small and Medium-Sized Enterprises” conducted at the beginning of this year by the Japan Chamber of Commerce and Industry (JCCI) and the Tokyo Chamber of Commerce and Industry (CCI) and released on march 14, 61.3% of SMEs that belong to 415 chambers of commerce and industry all over Japan are planning to raise the wages. That being said, 60.3% of these wage hikes will be “defensive increases” in a situation where no improvement in business performance is expected. Moreover, the essence of this problem lies in the fact that the smaller the size of the company is, the lower the rate of planned wage increases will be.

The business conditions for SMEs remain difficult. According to the data provided by the Japan Federation of Credit Guarantee Corporations, both the number and amount of subrogation payments on guaranteed loans have increased sharply since FY2022. The number of corporate bankruptcies has also been rising and it reached the “highest level in 30 years” in 2023 coinciding with the wage hikes. Such bankruptcies have been caused notably due to “zero-zero loans” payments, rising cost of living, and labor shortages. According to the survey mentioned above, 65.6% of SMEs are facing labor shortages as a management issue, and “wage hikes without improving business performance” under such circumstances may ultimately lead to a squeeze on business and loss of employment itself.

The key point for realizing a “healthy wage increase” for SMEs is whether the entire supply chain can secure the resources to raise wages to the end of the supply chain. In other words, it will be “whether the value chain can expand the absolute amount of value itself.” The increasing cost of living occurring currently is not driven by the increase in domestic demand. In short, the ability to generate domestic demand is crucial, and its lack is the major cause of the “30 years” of stagnation. I look forward to efforts to be made by those in the upper hierarchy of the supply chain who have been monopolizing a limited piece of the pie without being able to increase the overall profits of the supply chain, or even without paying attention to it.

This Week’s Focus, February 16

Takashi Mizukoshi, the President