Japanese firms boost salaries of young employees due to labour shortage and demographic shift

Japanese companies are boosting salaries for young employees, driven by labor shortages and demographic shifts, with the trend expected to shape the future employment landscape in Japan.

Japanese companies are increasingly enhancing salaries for young employees, potentially setting the stage for sustained wage growth—a development welcomed by the Bank of Japan as it seeks evidence of a positive wage-price cycle.

Firms such as Dai-Ichi Life Holdings and Nomura Holdings have unveiled plans to increase wages for younger staff by 16 per cent. Some companies are going even further, with Tokyo Electron raising  salaries by 40 per cent and Asics committing to a 24 per cent pay hike for incoming college graduates. These figures significantly surpass average wage gains and inflation rates in Japan.

This positive trend in pay comes as annual wage negotiations gain momentum. If this wage growth momentum continues into the current year, economists anticipate that the Bank of Japan could conclude its era of negative interest rates by April, as indicated by a majority of economists surveyed January.

Young people, in particular, are benefiting from a labor shortage, which is particularly acute in their age group. The number of employed individuals aged 20 to 24 has decreased by 36 per cent over the past three decades, according to Japan’s labor ministry.

With the national population aging due to a chronically low birth rate, upward pressure on starting salaries is expected to persist as a trend, contributing to overall wage level increases in the years to come. Companies are not only raising starting salaries but also enhancing benefit packages to attract talent.

In its January quarterly outlook, the Bank of Japan policy board highlighted that labor market dynamics will continue to exert upward pressure on wages, anticipating tightening labor market conditions. Monthly figures demonstrate a mismatch in supply and demand, with 127 jobs available for every 100 candidates in December.

This shift in the labor market is granting the younger generation more leverage to shape their work lives, with surveys indicating a growing propensity among new graduates to prioritize salary levels when considering job opportunities.

While initial wage hikes have primarily been observed among larger corporations, the trend is extending to other sectors too.

Akihiko Matsuura, president of UA Zensen, highlighted the efforts of smaller firms to attract and retain young talent by allocating funds towards starting salaries.

In conclusion, the upward trend in starting salaries for young employees in Japan reflects a significant shift in the labor market dynamics, driven by a combination of demographic changes, labor shortages, and increased competition for talent. As companies strive to remain competitive and attract the next generation of workers, this trend is likely to continue, shaping the future landscape of employment in Japan.