Pandemic Adds Uncertainty Over Minimum Wage Hikes In Japan


As Japan scrambles to shape an economic recovery, Prime Minister Yoshihide Suga’s administration wants to rely on one tool in particular: an increase in the minimum wage. Suga aims to reach an average hourly wage of ¥ 1,000 as soon as possible.

But businesses, especially small and medium-sized businesses, strongly oppose the move at this time, given that it’s hard enough to keep employees in jobs amid the coronavirus pandemic.

With a government panel currently holding talks on the matter, attention is shifting to whether the body will restore upward momentum to minimum wage or continue to approve a negligible increase like last year.

Each year, usually in early summer, the Ministry of Labor’s minimum wage panel proposes a rough target for hourly wage increases. Based on this 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 salary is 1,013 in Tokyo and the lowest is 792 in Akita and six other prefectures.

The country had seen a sharp increase of around 3% per year for four consecutive years before the COVID-19 outbreak. Yet, due to the economic damage associated with the health crisis, the increase was effectively halted last year.

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

It has shown its intentions through the recently developed Basic Policy on Economic and Fiscal Management and Reform, which lists the administration’s main economic programs.

He argues that wage inequalities have widened as a result of the pandemic, implying that the health crisis has inflicted damage on certain industries in particular, such as hospitality and tourism, possibly exacerbating income gaps. compared to other sectors.

“To correct the gap, an increase in the minimum wage is essential,” the policy document said.

Union representatives also stress the importance of the rise, as the pandemic has taken a heavy toll on essential workers, many of whom are part-time and poorly paid.

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

According to government data, the total number of part-time workers fell by 970,000 in the fiscal year to March, with around 650,000 jobs being held by women. Before the pandemic, the number of part-time workers had increased from around 100,000 to 550,000 per year for several years.

Businesses, however, fear that an increase in the minimum wage will add an additional financial burden when they are already going through difficult times.

Three major lobbying organizations for small and medium-sized enterprises – the Japanese Chamber of Commerce and Industry, the Central Federation of Trade and Industry Companies and the National Federation of Small Business Associations – jointly requested in June that the government maintain the current guidelines on minimum wages.

“Despite the difficult economic circumstances due to the coronavirus pandemic, business operators in our districts are striving to continue their activities and keep their jobs,” the joint statement said. “Many expressed the belief that raising the minimum wage would be ‘very difficult’.”

The statement added that the government should give priority to stimulating the economy through other measures before considering an increase in the minimum wage.

Economists have also expressed their caution over an increase.

“Until we can more clearly predict the course of the pandemic, I think minimum wages should be increased cautiously,” said Keiji Kanda, senior economist at the Daiwa Research Institute.

Kanda said that even though the pandemic halted minimum wage increases last year, the overall labor market continued to see a trend of rising wages.

According to Kanda, the average hourly wage of part-time workers in FY2020 increased by around 4% from the previous year.

Given this trend, “it might be wise to increase 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, what complicates the situation is the fact that the level of economic recovery differs greatly by industry.

Information technology and manufacturing companies have for the most part shown resilience, but the hotel, restaurant and hospitality industries are still suffering as many people still refrain from going out. .

These sectors have many employees who are paid close to the minimum wage.

“A sharp increase in the minimum wage might actually make the lives of these employees more unstable,” as their companies might not be able to keep up with the increase, Kanda said, adding that a move towards a 3% increase would be risky under the current circumstances.

Hisashi Yamada, vice president of the Japanese Research Institute, suggests that Japan take a flexible approach to the hike this year.

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

In addition, industries that have been particularly affected by the pandemic would be allowed to maintain current salary levels.

Raising the minimum wage became a priority for the government in 2015, when the administration of then Prime Minister Shinzo Abe set a target of increasing the country’s nominal gross domestic product to 600 trillion. yen by fiscal 2020.

To achieve this, the government has said it is crucial to increase minimum wages each year at a rate of around 3%, with the goal of reaching 1,000 per hour as soon as possible.

But Japan is a long way from meeting the GDP target, as its nominal GDP stood at 536.3 trillion yen in FY2020. Even before the pandemic, nominal GDP was 558.2 trillion yen. in fiscal year 2019, compared to 540,700 billion in fiscal year 2015.

“While the GDP did not grow as much, the minimum wage continued to climb by 3%,” Kanda said. “In that sense, the logic behind the 1,000 yen goal seems pretty vague now.

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

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