[Japan] Pressure to increase the minimum wage

A call to “more quickly” raise the legal minimum hourly wage has been made in the latest guideline to the government’s economic and fiscal policy, The Japan Times reports.

The guidance supports increasing hourly wages from the ¥874 of today to a national average of  ¥1,000 per hour. The urgency to act reportedly comes from worries about the impact of increased manpower expenses on the management of small and medium-sized companies. It did not, however, give a time frame in which the ¥1,000 level should be achieved.

Japan’s legal minimum wages are still well below the levels in many other major advanced economies. Prime Minister Shinzo Abe announced in 2015 that his administration would aim to raise the average minimum wage by 3 per cent each year to increase it to ¥1,000 an hour.

The minimum wages have increased by more than 3 per cent year-on-year from 2016 to 2018. They are estimated to reach ¥1,000 by 2023 if the current pace of rises continues. Though concerns remain over the potential damage higher minimum wages could cause, particularly for smaller firms in rural areas, it is believed that the government needs to push an acceleration of the minimum wage increase by helping businesses overcome any possible downside.

Hikes in minimum wages are considered to have both a positive and negative impact on the economy. Higher minimum wages will put up workers’ income and potentially expand their consumption. Yet a sharp increase, not matching prevailing economic conditions, might prompt employers that cannot afford higher manpower costs to cut back on hiring, potentially pushing up unemployment.

By the government’s assessment, Japan’s economy continues to enjoy an extended boom cycle. Growth in consumer spending continues to be uneven and weak and the labour market is the tightest in decades. The ratio of job openings to job seekers was 1.63 and the unemployment rate for April was 2.4 per cent.

The Japan Chamber of Commerce and Industry - a body whose members include many smaller businesses - released a statement opposing setting a target for raising the minimum wage at an annual pace any faster than 3 per cent. The latest policy guideline did not specify a date by when the hourly minimum wage should be raised to ¥1,000.

The regional gap in minimum wages a recognised problem accelerating the population shift to Tokyo in search of higher wages which causes manpower shortages in many rural regions of Japan. The issue came up when the amendment to the immigration control law - to make it easier to accept foreign workers to make up for the mounting shortage in the domestic labour supply - came into effect in April.

Some Liberal Democratic Party lawmakers called for a nationally uniform minimum wage system to be introduced to address worries that foreign workers would migrate to urban areas for higher wages. The government has denied that such a system is being considered after concerns from small businesses in rural areas that an increase in the minimum wage would drive up manpower expenses.

To speed up the minimum wage increase, moves to boost business productivity in order to cover increased manpower cost will prove essential. For those struggling small and medium-sized firms in particular. The government’s policy calls for measures to help such efforts by smaller businesses in addition to facilitating fair transactions between big companies and their subcontractors.