The latest guideline on the government’s economic and fiscal policy calls for “more quickly” raising legal minimum hourly wages to ¥1,000 on a nationwide average, compared with ¥874 today. Apparently in view of concerns over the impact of higher manpower expenses on the management of small and medium-size companies, however, it fell short of specifying a time frame for achieving the ¥1,000 level.

Japan’s legal minimum wages, the pay below which will subject the employer to punishment and determined by each prefecture, remain well below the levels in many other major advanced economies. In 2015, Prime Minister Shinzo Abe announced that his administration will seek to raise the average minimum wage by 3 percent annually to push it up to ¥1,000 an hour.

The minimum wages have in fact been increased by more than 3 percent year-on-year from 2016 to 2018, and are estimated to reach ¥1,000 in 2023 if the current pace of raise continues. While concern lingers over the possible damage from higher minimum wages, particularly on smaller firms in rural parts of the country, the government needs to push for accelerating the raise in minimum wages by taking steps to help businesses overcome its potential downside.

Hikes in minimum wages are said to have both positive and negative repercussions on the economy. Higher minimum wages will push up workers’ income and possibly expand their consumption, thus shoring up domestic demand. On the other hand, a sharp increase that does not match prevalent economic conditions may prompt employers that cannot accommodate higher manpower expenses to cut back on hiring, potentially pushing up unemployment.

According to the government’s assessment, Japan’s economy continues to be in an extended boom cycle. While growth in consumer spending remains uneven and weak, the labor market is the tightest in decades — the ratio of job openings to job seekers was a robust 1.63 and the jobless rate at 2.4 percent in April.

Corporate earnings remain fairly strong — even though their robust growth suffered a setback with the recent slowdown in the world economy. But the increase in workers’ wages has been more subdued. It appears the economy’s condition is robust enough for a significant raise in minimum wages.

Based on recommendations by a panel comprising experts and representatives from labor circles and employers at the Health, Labor and Welfare Ministry, the legal minimum wage is set in each of the nation’s 47 prefectures in view of workers’ living expenses and employers’ capacity to pay their employees in each area. Minimum wages tend to be higher in urban areas than in rural regions. Currently, there is a gap of more than ¥200 in the hourly minimum wage between Tokyo, the highest at ¥985, and Kagoshima, the lowest at ¥761.

During a May meeting of the government’s Council on Economic and Fiscal Policy, a participant from the private sector reportedly proposed that the nationwide average of minimum hourly wage be pushed up 5 percent annually as a measure to shore up domestic demand. Abe is said to have reacted favorably to the proposal, and called for a study into why minimum wages remain low in Japan and what effects will be expected from raising them.

Other members from the business sectors, however, are reported to have called for caution, citing the need to consider the impact of wage hikes on small and medium-size companies.

The Japan Chamber of Commerce and Industry, which includes many smaller businesses among its members, released a statement opposing any target for raising the minimum wage at an annual pace faster than 3 percent. Eventually the latest policy guideline did not specify by when the hourly minimum wage should be raised to ¥1,000.

The regional gap in minimum wages is often cited as a problem that accelerates the population flight to Tokyo in the pursuit of higher wages, causing manpower shortages in many rural regions of the country. The issue was also raised when the amendment to the immigration control law — paving the way for accepting more foreign workers to make up for the mounting shortage in the domestic labor supply — was implemented in April.

Some lawmakers in the ruling Liberal Democratic Party called for the introduction of a nationally uniform minimum wage system — out of concern that the foreign workers would just migrate to urban areas that offer higher wages. However, the government quickly denied that such a system is being considered — apparently in light of strong concern among small businesses in rural areas that increases in minimum wages would push up their manpower expenses.

In order to speed up the hikes in minimum wages, measures to enhance the productivity of businesses — particularly the struggling small and medium-size firms — to cover the increased manpower cost will be essential. The government’s policy calls for measures to facilitate such efforts by the small businesses, as well as other support for such firms such as ensuring fair transactions between big companies and their subcontractors.

For their part, the companies also need to consider rising minimum wages not as a threat to their bottom lines but as an opportunity to secure the manpower they need and improve their productivity by making necessary investments.

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