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Japan’s minimum wages must be raised by at least 3% in fiscal 2021, which started in April, said David Atkinson, a member of the government’s growth strategy panel.

In a recent interview, the 56-year-old Atkinson, who is known to be a key adviser to Prime Minister Yoshihide Suga, stressed the need to use wage hikes as an opportunity to urge the heads of smaller companies with low labor productivity to change current business models that rely on cheap labor.

He noted that Europe and the United States have raised their wages by around 5% in 2020 and by around 2-4% in 2021, despite the adverse effects of the novel coronavirus pandemic.

On the other hand, Japan’s minimum hourly wages in fiscal 2020 rose by only ¥1 from the previous year to ¥902 on average.

“Japan’s economy is expected to improve on the back of the spread of COVID-19 vaccinations,” Atkinson said in Japanese, adding that the country should not keep wage levels almost unchanged for this fiscal year.

The wage hike “will also boost private consumption and help reduce disparities,” he said.

He warned that Japan will fall behind unless it increases its minimum wages, as other countries are starting to fix their current situations in which the labor share is declining.

If Japan continues to have one of the lowest minimum wage levels of developed nations, corporate heads will not pay employees’ wages that should be paid and companies will hold onto business models with poor productivity, Atkinson said.

He proposed that smaller companies, which employ 70% of people working in Japan, grow larger to improve productivity.

“I want improvement by companies, not a shakeout,” he said.

The Japan Chamber of Commerce and Industry, however, has asked that the country’s minimum wages be kept unchanged for this fiscal year, saying that smaller businesses are still struggling amid the prolonged coronavirus crisis.

Atkinson said that only 5% of added value generated in Japan is from businesses related to the accommodation, restaurant and lifestyle services sectors.

“The Japanese government should raise the minimum wages for the good of the whole Japanese economy, while implementing measures to help some business sectors (that are facing financial difficulties due to the pandemic),” he said.

In its new basic economic and fiscal policy guidelines adopted last month, the central government stipulated that it would raise the weighted average of minimum hourly wages in the country to ¥1,000 as soon as possible.

Elsewhere in the interview, Atkinson highlighted the importance for the government to work on measures related to green growth, and information and communication technology to boost capital investment.

Atkinson, who once served as a partner of U.S. investment bank Goldman Sachs, is president of Konishi Decorative Arts and Crafts Co., which repairs cultural properties.

In the past, he has advised the Japanese government to make efforts to attract more foreign tourists.

The government in its 2021 white paper on tourism released in June maintained its goal of increasing the number of visitors from overseas to 60 million in 2030, although the number plunged to 4.12 million in 2020 amid the pandemic, falling far short of the government target of 40 million for the year.

“There is no need to change (the 2030 target),” Atkinson said, voicing confidence that Japan will still be able to achieve the goal as the number of visitors from abroad is expected to recover thanks to the spread of coronavirus vaccines.

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