Japanese Prime Minister Fumio Kishida on Friday urged companies whose earnings have recovered to pre-pandemic levels to raise wages by 3% or more at their labour talks next spring, aiming to achieve a virtuous cycle of growth and wealth distribution.
Kishida also told his "new capitalism" panel meeting that the government would take steps to raise the incomes of welfare workers such as childcare workers, nurses and caregivers by 3% continuously.
With the 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 labour costs to customers.
The wage hike proposal is part of Kishida's strategy to tackle wealth disparities and redistribute wealth, while the government is also trying to ease the pain on consumers from rising oil and food costs.
"I expect that, at next year's labour 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 labour unions 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.
A government official had earlier denied media reports that the premier would propose that the business sector raise wages by around 3% in next year's annual wage negotiations.
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%.
(Reporting by Leika Kihara and Kantaro Komiya; Additional reporting by Daniel Leussink and Tetsushi Kajimoto; Editing by Ana Nicolaci da Costa and Stephen Coates)
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