Japan’s SMEs: Key Players in Nationwide Wage Hike

• Takeshi Niinami emphasizes the role of small and medium-sized companies in raising wages in Japan.
• In the US, compensation expenses for banks grew 4.1% year over year, reaching $149.6 billion in the first half of 2024.
• The technology sector in the US has seen a slight decrease in unemployment, falling to 2.5% in November.
• The benefits of economic growth are not evenly distributed, with high-income shareholders and executives benefiting more from tax cuts.

The global economic landscape is witnessing a significant shift, particularly in the realm of wages and employment. In Japan, Takeshi Niinami, chairman of the Japan Association of Corporate Executives, recently emphasized the crucial role of small and medium-sized companies in raising wages nationwide. These firms, which employ around 70 percent of Japan’s workforce, have been hesitant to pass rising costs onto their clients due to fear of losing business opportunities. Niinami’s comments come at a time when the government of Prime Minister Shigeru Ishiba is seeking to establish a positive cycle of wage and price hikes.

This focus on wage hikes is not unique to Japan. In the United States, compensation expenses for banks with more than $10 billion in assets grew 4.1% year over year, to $149.6 billion in the first half of 2024. This increase was primarily due to performance-linked rewards in revenue-generating businesses, such as trading, wealth management, and investment management. However, the cost of financial crime compliance has also increased for 99% of financial institutions in the United States and Canada, reaching $61 billion.

The Role of SMEs and Technology in the Economy

In Australia, small and medium-sized firms (SMEs) are recognized as the backbone of the economy. SMEs account for two-thirds of private sector employment and just under 60% of company profits. They are also seen as potential engines of innovation and dynamism in the Australian economy. However, unleashing this creative energy first requires access to financing on reasonable terms, which has historically been a challenge.

The technology sector in the US has seen a slight decrease in the unemployment rate, falling to 2.5% in November. This contrasts with the overall US unemployment rate, which rose slightly from 4.1% in October to 4.2% last month. Despite economic and political uncertainties, employers continue to prioritize hiring for in-demand skills, including medical, software developers, analysts, and legal and communications professionals.

Inequality and the Future of Work

However, the benefits of economic growth are not evenly distributed. A study conducted six years after the Tax Cuts and Jobs Act was signed into law by former President Donald Trump found that the benefits of the law’s signature $1.3 trillion C-corporation tax cut went to high-income shareholders and executives—not low- or moderate-income workers.

The rapid evolution of the US labor market is also being driven by generative AI, which is expected to automate up to 30 percent of hours currently worked across the US economy. While this trend is likely to impact certain job categories, it is also expected to enhance the way STEM, creative, and business and legal professionals work.

Exorbitant CEO pay is another contributor to rising inequality. CEO compensation has escalated over time, fueling the growth of top 1% and top 0.1% incomes, leaving fewer of the gains of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%.