Editorials

Raising the minimum wage

A recent decision by a government advisory panel to recommend raising the nation’s average legal minimum hourly wage by 3 percent this year — reportedly at the strong urging by Prime Minister Shinzo Abe — is a welcome move that should be continued. However, the proposed raise — though the highest since the government started discussing minimum wages under the current format in 2002 — alone would be far from enough to substantially improve the conditions of millions of people who work at or close to the minimum legal wage. It needs to be accompanied by other policy steps and labor practices, including encouraging more workers to be hired on regular full-time contracts, as well as support for small and medium-size companies so as to make sure that rising the minimum wages will not prompt them to reduce employment.

The recommendation by the Central Minimum Wages Council at the Health, Labor and Welfare Ministry will raise the national average of the minimum hourly wage, which are set in each prefecture, by ¥24 to ¥822. The discussion at the panel of experts comprising representatives from labor circles and business management is said to have been driven by Abe, who has spelled out a policy of raising the minimum wages by 3 percent annually to ¥1,000 within several years as part of efforts to fuel consumer spending and accelerate economic growth. The raise will indeed be higher than the average 2 percent hike among companies surveyed by Keidanren (Japan Business Federation) and the Japanese Trade Union Confederation (Rengo) in the annual wage negotiations this spring.

The changes in the minimum wages will affect many of the workers on irregular contracts, such as part-timers and temporary dispatch workers, and raising the level is all the more crucial for the economy since such people now account for 40 percent of the nation’s employed workforce. The problem is, even with the steady increases in recent years, the minimum wage in Japan remains well below the levels guaranteed in many other advanced economies — so low that until a few years ago, people hired on the minimum wage in some prefectures were earning even less than what people on welfare were receiving in benefits.

It’s not clear how much of an impact the proposed raise will have in reducing the nation’s ranks of the so-called working poor, who are often defined as earning less than ¥2 million a year. Government figures show 11.2 million workers — or about 24 percent of people with year-round jobs — earned ¥2 million or less in fiscal 2013, including 4.2 million who earned ¥1 million or less. The Cabinet Office estimates that 3 to 5 million people are hired at or barely above the legal minimum wage. In a simple calculation, a person paid an hourly wage of ¥822 will make roughly ¥1.7 million a year.

It’s the right policy direction to increase the minimum hourly wage legally guaranteed for workers. In Japan, however, the wage gap with full-time corporate employees is too steep. People on irregular jobs typically earn about 60 percent of what their full-time counterparts make — compared with roughly 80 percent in many European economies. The Abe administration has also embarked on efforts to close the disparity by advocating the “same work, same pay” principle, although specifics and practically of its policy remain to seen.

Another problem is the widening regional gap. Currently the minimum hourly wage in Tokyo, the highest, is ¥907 — ¥214 higher than in the lowest-rank prefectures of Tottori, Kochi, Miyazaki and Okinawa at ¥693. If the panel’s recommendation is adopted in the revision of the minimum wage in each prefecture, effective beginning in October, the disparity is forecast to widen to ¥218 — double the ¥109 gap in 2006. While the minimum wage is set in accordance with the economic conditions in each prefecture, there are concerns that the widening gap could exacerbate the exodus of labor from low-paying prefectures to higher-paying areas.

In pushing the legal minimum wage higher, the government also needs to implement support for the small and medium-size businesses — which are the primary employers of people working on minimum pay levels — that will face increased manpower costs. Care needs to be taken so that those businesses are not tempted to cut jobs to accommodate the higher wages, which would defeat the very purpose of the policy. A subcommittee of the labor ministry panel called on the government to aid the smaller firms’ efforts to raise productivity and to help improve the conditions of their transactions with larger firms. The key is to get the major companies, which have stood to gain the most from the administration’s economic policies, to set the conditions for smaller businesses to be able to offer higher pay for their workers as well. The government should actively encourage them to do so.