Minimum wage uptick

A panel of the Central Minimum Wage Council, an advisory body for the health, labor and welfare minister, on Aug. 6 recommended that the minimum hourly wage be raised by ¥14 on average to ¥763.

This will be the first time that the minimum hourly wage is raised by ¥10 or more since it was raised by ¥17 in 2010. The recommendation is a tiny step in the right direction at a time when the nation needs wage increases to get out of a long period of deflation and to ensure a steadfast economic recovery.

The Abe administration hopes that a raise of the minimum wage will lead to expansion of consumption, and thus to sustainable economic growth. Although Prime Minister Shinzo Abe cannot tell the panel what to do, the panel apparently felt pressure from the administration. The ¥14 raise is an increase of about 2 percent, which roughly corresponds to the Abe administration’s goal of attaining wages hikes of 2 percent or more.

But the increase is so small that it’s possible that it will be offset by price rises of consumer goods. The prices of some food items, gasoline, city gas and electricity are rising because of increased import costs of some resources attributable to the cheap yen policy of the Abe administration and the Bank of Japan.

Another problem is that a gap in the minimum wage level between urban and rural areas is widening. The minimum hourly wage in Tokyo is currently ¥850 while that in Shimane and Kochi prefectures is ¥652. Based on the panel’s recommendation and taking local conditions into consideration, local councils will decide on the actual minimum wage level for each prefecture. The new minimum wage will take effect around October.

It is hoped that if necessary, local councils in rural areas will raise the minimum hourly wage by more than the ¥14 margin recommended by the panel of the Central Minimum Wage Council. Otherwise, the outflow of workers from rural areas to urban areas could accelerate.

The government must recognize that both regular and irregular workers whose wages are just above the minimum wage level are in dire financial straits. At an hourly wage of around ¥650, a full time worker will get a take-home monthly pay of only about ¥110,000. Workers at a facility helping disabled people in Sendai, for example, get an hourly wage of about ¥750, higher than the minimum wage of ¥685. But their take-home pay is only about ¥130,000.

At the same time, small businesses facing financial difficulties will have a hard time meeting the minimum wage requirement. The government should help them find ways to increase the efficiency of their operations so that they can reduce overall costs.

The increase in the minimum hourly wage should remind company executives of the importance of their striving to improve labor productivity so that they can raise wages without reducing the number of people on their payroll. If companies rely on cutting wages and firing workers to improve their bottom line, the Japanese economy will suffer as a whole and its nascent recovery will stall.

  • http://www.sheldonthinks.com/ andrew Sheldon

    Wow, that is low. Half of Australia’s rate. That explains why those bars which I frequent are able to function with hardly any customers.

    • http://getironic.blogspot.com/ getironic

      Yep, and when the wage gets so high as to cost those bars too much money, they will just close and those jobs will be gone.

      Eliminating jobs whose work is worth less than the “minimum” is what the MW does.

      • Dean

        It’s nice to see that at least one person (getironic) gets it. Minimum wage laws are nothing more than price controls–wages being the “price” of labor–and while people seem to understand that in general price controls are bad, they don’t seem to carry this understanding over to minimum wage laws.

        While I do believe that most people who advocate higher minimum wages are well-intended, it’s a classic case of what Bastiat referred to as “what is seen vs. what is unseen.” People see the higher wages. What is “unseen” is the detrimental effect these laws have on small businesses and low-skilled workers. Ironically, the very workers these laws are supposed to help.

        For those who wish to gain a better understanding of this, I’d recommend reading chapter 18 of Henry Hazlitt’s “Economics in One Lesson”. It can be easily found for free online.

        I truly believe that if people could get their thoughts straight on this issue, they would then be able to recognize the negative effects of other government intervention into the economy.

        “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of the policy not merely for one group but for all groups.” (Economics in One Lesson)

      • http://getironic.blogspot.com/ getironic

        “I truly believe that if people could get their thoughts straight on this issue, they would then be able to recognize the negative effects of other government intervention into the economy.”

        I don’t.

        Economics has explained all of this already, years ago. We have the answers. Anyone can read and find out for themselves.

        People go on believing what they want, not for economic reasons, but for moral reasons. The challenge ahead is not in answering economic questions, it is in challenging the morality of altruism that has undermined human progress and well-being since the beginnings of philosophy.

      • http://www.sheldonthinks.com/ andrew Sheldon

        Actually if you read what getironic wrote he actually ‘doesn’t get it’. He is describing normal market functioning. The reality is that ‘minimum wage’ policy is bad policy in a certain context. If you are restricting immigrants, therein illegitimatising workers, say Filipinos working in factories, then unless you are advocates of abuse, that ‘distortion’ which you probably don’t approve of, is just going to precipitate abuse. The implication being, if you want to strip out distortion, you need to get rid of it all. Then you have to live with the word of immigrants flooding into your country. I suspect people will prefer minimum wages, whether ‘they get it’, or not. The problem is people who don’t know what they don’t know.

      • http://getironic.blogspot.com/ getironic

        You need to check your premises.

        A state that would abolish the minimum wage is a state that doesn’t have welfare programs either.

        So what if “immigrants flood in” under such a context? They still have to be productive and work to live. That’s a benefit to people who already live there, not a detriment.

        Mass immigration is only a problem if there are welfare programs which can be abused, and if there are no standards (language, education, criminal checks, etc) for entry.

      • http://www.sheldonthinks.com/ andrew Sheldon

        My premises are fine, though the suggestion ‘check your premises’ reminds me of a Randian perspective. Your context is not fully developed because you are overlooking the fact that we live under a system of extortion called ‘representative democracy’. Opening immigration to all would lead to the sanction of extortion, unless your flooding the nation with people from Galt’s Gulch. hehe. Whilst I don’t want collectivism, I’d sanction it where it protects individualism. This is the failing of many ‘pseudo-individualists’; they display the ‘conservative’ tendency for context dropping. Or is it just ignorance? One needs to be strategic and not betray your hierarchy of values.