Earlier this month, the Finance Ministry reported that the labor share in the final quarter of calendar year 2017 for companies with capital of more than ¥1 billion was 43.9 percent. That basically means 43.9 percent of these companies’ income went to employees. The Nihon Keizai Shimbun described this portion as being “still stagnant,” implying that Japanese corporations are not paying their workers enough, especially given that they hold a record ¥400 trillion in retained earnings — money that isn’t being used for anything. (In contrast, the labor share for small and medium-sized companies is 70.1 percent.) Corporations aren’t spending this cash because they are afraid demand will continue to deteriorate and that if they increased pay, it would be difficult to decrease it if business went bad. But if workers aren’t being paid enough, they are going to be more reluctant to spend, thus reducing demand and realizing their employers’ fears.
This elementary economic principle hasn’t been mentioned in the public debate about the ruling Liberal Democratic Party’s proposed series of labor reform bills, but it’s at the heart of people’s concerns about their possible passage. The government, at the behest of the Japan Business Federation (Keidanren), wants to raise productivity in order to make Japan more globally competitive. It also wants to solve (or, at least, be seen as trying to solve) the problem of excessive overtime, which has led to the well-reported dangers of karōshi (death from overwork). In the face of labor shortages, companies want laws that reduce their obligation to pay overtime, while workers are afraid that limiting it will reduce their wages, since in many cases they have come to expect overtime, not as the occasional compensation for extra work, but rather as an essential part of their livelihood.