As Japan scrambles to fashion an economic recovery, the administration of Prime Minister Yoshihide Suga wants to lean on one tool in particular — an increase to the minimum wage. Suga is aiming to achieve an average ¥1,000 hourly wage as soon as possible.

But businesses, especially small and midsize companies, are loudly opposing the move for now, given that just keeping employees in a job is already tough enough amid the coronavirus pandemic.

With a government panel currently holding talks on the issue, attention is gravitating to whether the body will bring back upward momentum to the minimum wage or continue to endorse a negligible raise like last year.

Every year, usually early in the summer, the labor ministry’s minimum wage panel comes up with a rough target for hourly wage increases. Based on that figure, each prefecture makes a decision on changes to its minimum wage in October. Currently, the nationwide average minimum hourly wage is ¥902. The highest wage is ¥1,013 in Tokyo, and the lowest is ¥792 in Akita and six other prefectures.

The country had seen a steep increase of about 3% annually for four consecutive years prior to the COVID-19 outbreak. Yet because of the economic damage stemming from the health crisis, the raise was effectively kept on hold last year.

But the Suga administration apparently wants to get the upward trend back on track.

It has shown its intentions through the recently compiled Basic Policy on Economic and Fiscal Management and Reform, which lists the key economic agendas of the administration.

It argues that wage inequality has been widening because of the pandemic, implying that the health crisis has inflicted damage on some industries in particular, such as hospitality and tourism, possibly aggravating income gaps compared with other sectors.

“To correct the gap, a minimum wage hike is essential,” the policy document says.

Labor representatives also stress the importance of the hike, as the pandemic has taken a severe toll on essential workers, many of whom are part time and low paid.

“A lot of part-time workers have lost their jobs, and leaving minimum wages unchanged (last year) has shackled the economic recovery,” Zenroen, a major labor union, said in a statement released in April.

According to government data, the total number of part-time workers plummeted by 970,000 in the fiscal year through March, with about 650,000 jobs belonging to women. Before the pandemic, the number of part-time female workers had increased by roughly 100,000 to 550,000 annually for several years.

Businesses, however, are worried that a minimum wage hike would add a further financial burden right when they are already going through tough times.

Three major lobbying organizations for small and midsize firms — the Japan Chamber of Commerce and Industry, the Central Federation of Societies of Commerce and Industry and the National Federation of Small Business Associations — jointly requested in June that the government keep the current minimum wage guidance.

“Despite the harsh economic circumstances due to the coronavirus pandemic, business operators in our districts are pushing themselves to continue their business and keep jobs,” the joint statement said. “Many have voiced the belief that raising minimum wages would be ‘very tough.'”

The statement adds that the government should prioritize revving up the economy through other measures before looking at a minimum wage hike.

Economists have also expressed caution over an increase.

“Until we can predict the course of the pandemic more clearly, I believe that minimum wages should be raised in a careful manner,” said Keiji Kanda, senior economist at the Daiwa Institute of Research.

Kanda said even though the pandemic put a break on minimum wage hikes last year, the overall labor market continued to see a trend of increased wages.

According to Kanda, the average hourly wage of part-time workers in fiscal 2020 increased by about 4% compared with the previous year.

Considering this trend, “it could make sense to raise minimum wages” this year, he said.

Passengers wait for a train at JR Shinjuku Station in Tokyo on June 17. | AFP-JIJI
Passengers wait for a train at JR Shinjuku Station in Tokyo on June 17. | AFP-JIJI

However, complicating the situation is the fact that the level of economic recovery differs starkly by industry.

Information technology and manufacturing firms have in the main shown resilience, but the hotel, restaurant and hospitality industries are still suffering, as many people are still refraining from outings.

Those sectors have many staffers who are paid close to the minimum wage.

“A steep hike in minimum wages might actually make the lives of those employees more unstable,” because their companies may not be able to keep up with the raise, Kanda said, adding that a move toward a 3% hike would be risky under the current circumstances.

Hisashi Yamada, vice chairman of the Japan Institute of Research, suggests that Japan takes a flexible approach to the hike this year.

In his report released late last month, Yamada said that the basic target can be about 2%, but prefectures that have low job opening rates can adopt around a 1% increase.

In addition, industries that have been hit particularly hard by the pandemic would be allowed to maintain current wage levels.

Raising minimum wages became a priority for the government in 2015 when the administration of then-Prime Minister Shinzo Abe laid out a goal of boosting the country’s nominal gross domestic product to ¥600 trillion by fiscal 2020.

To achieve this, the government said it was crucial to raise minimum wages annually at a pace of about 3%, with the aim of reaching ¥1,000 per hour as soon as possible.

But Japan is far from reaching the GDP target, as its nominal GDP stood at ¥536.3 trillion in fiscal 2020. Even before the pandemic, nominal GDP was ¥558.2 trillion in fiscal 2019, compared with 540.7 trillion in fiscal 2015.

“While GDP did not increase that much, the minimum wage kept jumping by 3%,” said Kanda. “In that sense, the logic behind the ¥1,000 target seems quite vague now.

“They don’t have to take down the ¥1,000 goal, but I think the government needs to discuss setting a new benchmark based on the updated economic situation.”

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