One of the bedrock principles of market economics is that as demand for labor goes up, so do wages. Lately, there has been evidence that this idea may no longer be true.
Two weeks ago, the labor ministry released figures showing that the jobless rate for April was only 2.8 percent. Moreover, there were 148 job positions open for every 100 people looking for work, the highest ratio in 43 years. During the high-asset bubble period of the late ’80s, the ratio was slightly less — 145 positions for every 100 job seekers — and salaries were rising at a rate of 4 percent a year.
But the labor ministry reported that in 2016, wages across the board — regardless of whether we’re talking full-time or part-time employment, regular or nonregular employees — only rose by 0.4 percent. Granted, it was the first time in six years that wages had gone up, but everything we learned in school tells us it should have gone up much more.
The main reason it hasn’t, according to an article in the May 24 Tokyo Shimbun, is low consumption. Because of Japan’s shrinking population and the attendant anxiety about the future, there isn’t enough domestic spending to make companies sufficiently confident to raise wages. In addition, a larger portion of the workforce is in part-time and nonregular jobs, which traditionally pay less. Part-time hourly wages last year rose by 2 percent, higher than the average paycheck. Part-timers usually (but not always) work fewer hours — in 2016 they worked 2.1 percent less than they did the previous year—thus exerting downward pressure on wages across the board.
The government is addressing this situation by “changing the way people work” in terms of overtime, employment structure and other factors. Part of the plan is to boost the minimum wage, which is set by individual prefectures. Right now, the national average is ¥823 an hour. The government’s aim is to raise it to ¥1,000 an hour by 2020 by somehow increasing it 3 percent each year. Many people argue this isn’t enough, saying the government should shoot for ¥1,500 an hour.
The business community is against any sort of mandatory wage directives, but experts are coming around to the establishment of a ¥1,500 minimum wage.
Shuichi Nakazawa, an associate professor at the University of Shizuoka Junior College, whose field is social security, told the Tokyo Shimbun that his research shows that ¥1,500 an hour is an “appropriate” wage in terms of how much the average person needs “to get by” in Japan. Nakazawa surveyed 7,000 men and women ranging from teenagers to those in their 70s all over the country, taking into consideration their transportation costs, taxes and social security payments, hobbies and social recreation, housing, and more.
It was important to differentiate expenses from one region to another. Transportation costs in the major cities were less because of public transit. In the suburbs and rural areas, people relied more on cars and thus spent more to get around. On the other hand housing in cities is much more expensive.
Nakazawa found that the minimum wage in every prefecture was much less than what workers needed to lead a “decent life.” In the city of Saitama, just north of Tokyo, the minimum wage is ¥845, but Nakazawa calculated a person needed to make ¥1,613 to be comfortable. In Nagoya, where the minimum wage is also ¥845, you need at least ¥1,513. And in the city of Shizuoka, where the minimum wage is ¥807, you need ¥1,644.
What Nakazawa is trying to determine is a so-called living wage, a concept that has not fully taken root in Japan. In the U.S., living wage calculations have been used by certain local governments, like Seattle’s, to determine minimum wages, since for the most part, minimum wages in the past had been determine by politics, the result of wrangling between lawmakers and business interests.
The canard about minimum wages is that if they’re set too high, companies will be forced to either cut staff or go out of business, and employers always use this argument when lobbying against an increase.
Since the federal minimum wage in the U.S. has been $7.25 an hour for many years, business interests have obviously been successful. But what does success like that mean when full-time workers of the retail giant Walmart, one of the biggest private employers in the U.S., have to receive food stamps from the government because their pay isn’t enough to feed their families?
At the heart of the minimum wage argument is the prejudice that it should literally represent the “minimum” for survival. A worker in Tokyo who is paid minimum wage will earn about ¥165,000 a month if they work 40 hours a week, and they still have to pay taxes and contribute to national pension and health insurance plans. An unmarried welfare recipient in Tokyo receives about ¥135,000 a month. Is that enough of a difference?
Nakazawa points out that the minimum wage doesn’t just apply to part-time wage earners, which is how it’s usually characterized. He uses the example of a woman he studied who is in her 30s, works at a small apparel company and lives in Tokyo. As a regular employee she earns ¥220,000 a month. However, she often works late and even comes into the office on Saturdays. Nakazawa calculated that, given the time she worked and including housing and other allowances offered to regular workers, she was making ¥950 an hour, just slightly more than the capital’s minimum wage of ¥932.
Expected overtime, he explains, is usually factored into salaries when they are determined by a company (sometimes with the help of labor unions). In other words, even salaried regular employees are affected by minimum wage levels. It thus follows, says Nakazawa, that if the minimum wage is increased for wage earners, it would also affect salaried workers. As it stands, the woman cited by Nakazawa told him that, due to the high rents in Tokyo, she can’t save money. It’s the reason she has put off marriage, even though she has a steady boyfriend.
A recent book by Osaka City University Professor Toru Kodama, titled “Housing Poverty and the Rental Generation,” puts forth the prospect of an entire generation of renters too poor to ever be able to buy a home, which begs the question: What’s so good about full employment when a significant portion of the workforce only makes survival wages?
Another canard associated with the minimum wage is that it is only meant for entry-level positions. Workers will eventually move up the job ladder. But the overall employment structure has changed so drastically in the past two decades — away from permanent employment toward contract work — that such opportunities are increasingly limited, mainly because companies, when left to their own devices, favor shareholders over stakeholders. Profits for employers trump job security for employees.
The government’s position is that it has to liberalize the job market in order to help existing businesses grow and to attract and cultivate new ones. Growth will then be accompanied by stronger jobs that pay more, but this seems to be another economic truism that is falling by the wayside. Company profits are at an all-time high, but wages aren’t increasing accordingly. When workers complain about not getting a raise, their employers reply that if they have to pay more under such globally competitive circumstances, they could go out of business. Maybe it’s time the government let companies who don’t pay a living wage do just that.
Yen for Living, a column that covers issues related to making, spending and saving money in Japan, runs on the second Saturday of every month.