January 26, 2012

The ruling Democratic Party of Japan and the major opposition parties, the Liberal Democratic and Komei parties, on January 25 agreed to cut national government workers’ wages by about 8%.

With the announcement of this measure, the DPJ is attempting to display its initiative in cutting government spending in order to gain public support for a consumption tax hike.

The government claims that the 8% wage cut will make it possible to save 290 billion yen in government spending. However, in actuality, a labor think tank has pointed out that the government will lose 540.1 billion yen in tax revenues in a case that a 10% wage cut is carried out.

Workers and the general public will face dual hardships associated with a higher consumption tax rate and a vicious circle of wage decline due to the government’s cut in its workers’ wages.

Public sector workers’ wages are adjusted every year to be on a par with private sector workers’ wages based on a survey result of wages of private companies with more than 50 employees. On the other hand, private sector employers use public workers’ wage cuts as an excuse to cut their employees’ wages. Therefore, any reduction in the salaries of national civil servants leads to a vicious downward spiral of all workers’ wages.

Unlike other major countries, Japanese workers’ wages have been steadily decreased for the past decade. This is the reason for Japan’s stagnant economy. The vicious circle of wage cuts may further the already weakened pattern of consumer spending.