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Japan's small firms hold out for Abenomics trickle down

TOKYO (Reuters) - Japan Inc is under pressure to boost pay to keep a fragile economic recovery afloat, but even hefty wages increases from the biggest companies may prove to be a hollow victory for Prime Minister Shinzo Abe and the bulk of the country’s workers.

Men work at a construction site in the Toyosu district in Tokyo, February 12, 2015. REUTERS/Thomas Peter

As the annual “shunto” Spring wage bargaining season begins, the pay prospects for employees of blue-chips such as Toyota look better than they have for more than a decade, thanks to Abe’s push for higher wages that will boost consumer spending.

That optimism has not spread to workers such as those at Nihon Kikai Kogyo Co, who build fire trucks in a cluster of workshops an hour’s drive from Tokyo and whose union says are yet to see any trickle-down benefits from “Abenomics”.

“Last year in pay talks we reminded the company about Abe’s call for higher wages, but management told us it was immaterial,” said Hironobu Yamaguchi, Secretary General of the union that represents 124 of Nihon Kikai’s 155-strong workforce.

“We expect the same answer this year,” he added, sipping green tea in a wooden shack that doubles as the union office and company snack shop.

The contrast highlights a major policy challenge facing Abe in his drive to lift the world’s third-biggest economy decisively out of years of deflation and fitful growth.

Around 70 percent of Japanese workers are employed by small and medium sized firms, and economists say generosity from a few corporate titans will not deliver a consumer-led revival while the majority of firms keep their purse strings tight.

“The government is asking a small number of large firms, particularly large exporters that are doing extremely well in terms of profits, to raise wages,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

“The prime minister may have some success, but at the macro level the impact is limited.”

CORPORATE BELLWETHER

Pay talks at Toyota Motor Corp 7203.T, widely seen as a bellwether for Japan's big firms, got under way on Wednesday.

Emboldened by Abe’s call for corporate Japan to do its part for the economy, workers at Japan’s eight automakers are all seeking base wage hikes of 6,000 yen ($50) a month - around 1.7 percent - about two to three times more than the additional pay they received last year. [ID:nL4N0VZ1E7

Toyota’s workers want another 7,300 yen on top of that in seniority-related raises and a one-off bonus equivalent to 6.8 months’ worth of salary. The company said the total wage hike workers were asking for was equivalent to a 3.7 percent raise.

“The request was far higher than what we had expected, so we conveyed to them that ... it was totally impossible to meet the demands in full,” Tatsuro Ueda, managing officer in charge of human resources, told reporters at Toyota’s headquarters.

While the government argues higher wages at large firms will filter down the supply chain, union representatives, and some economists, instead see it leading to a widening pay gap between workers at the top and bottom of Japan’s corporate pyramid.

“Normally you raise productivity and then wages rise, but the government has the cart before the horse by asking companies to raise wages again,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

“Companies won’t dance to the government’s tune.”

Workers at Nihon Kikai, a subsidiary of underwear maker Katakura Industries 3001.T, seem to share that view.

In a survey published by the company union in January, more than 40 percent of members said they were very unhappy with their living standards, up from 35 percent the previous year.

Like many Japanese firm, Nihon Kikai cut wages in response to the 2008/09 financial crisis. While that was partly restored last year, the union says it has not compensated for rising household bills.

The company declined to comment about wage negotiations when asked whether the it planned to award higher pay increases in accordance with Abe’s call for wage hikes.

REAL WAGES FALL

Salaries in Japan have been rising in nominal terms, but not fast enough to keep pace with prices inflated by Abe’s easy money policies and a sales tax increase in April.

Real wages slid 2.5 percent in 2014, down for a third straight year. The Japanese Trade Union Confederation (JTUC) this year is asking for pay increases in excess of 2 percent.

The extra-loose monetary policy that is a key pillar of Abenomics has benefited an elite of big exporters such as Toyota. But many smaller firms are being squeezed as the weaker yen raises the cost of imported parts.

In the third quarter of 2014, large firms had operating margins of 5.9 percent, compared with 2.8 percent at small firms, according to a survey by Japan’s Ministry of Finance.

“Suppliers are under constant pressure to cut prices,” said Tetsuya Gomi, a senior official at the Japanese Association of Metal Machinery and Manufacturing Workers, an umbrella organization that represents 350,000 small company workers.

“Even if small firms are making money they can’t award workers bigger pay rises than the parent company.”

($1 = 118.9500 yen)

Additional reporting by Maki Shiraki in Toyota City and Chang-Ran Kim in Tokyo; Editing by Alex Richardson

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