Japan is set to raise its minimum wage by the most on record, a boost for low-income households as they try to cope with the increasing costs of living.
An advisory panel at the Japanese Ministry of Health, Labor and Welfare decided late on Monday to seek a rise in the national average of minimum hourly pay by ￥31 (US$0.24), or 3.3 percent, from the current ￥930 this fiscal year, the ministry said.
If finalized, that would be a record hike in terms of the amount and percentage difference since the government began using hourly pay as the benchmark in 2002.
Japanese Prime Minister Fumio Kishida sees wage gains as a key factor to drive growth, while he also seeks a fairer distribution of wealth. Except for fiscal 2020 at the height of the COVID-19 pandemic, the minimum wage has risen at least 2 percent since fiscal 2013 as then-Japanese prime minister Shinzo Abe pressed ahead with his economic revitalization program.
“Raising the minimum wage is important in terms of investing in people,” Japanese Deputy Chief Cabinet Secretary Seiji Kihara told reporters on Monday. “I hope it’ll be increased at a pace that’s appropriate for the era of new capitalism.”
A steady wage increase of 3 percent is seen as necessary to keep inflation above the Bank of Japan’s 2 percent target in a sustainable manner.
“This is going to prompt companies to pass cost pressure to consumers rather than saving on wages and cutting production costs,” Norinchukin Research Institute economist Takeshi Minami said of the minimum wage hike. “I think this is a good thing to do in a nation like Japan where demand-based inflation remains weak. The government is sending a message to companies.”
In addition to the minimum wage, other measures show workers are getting a modest boost in their paychecks, but overall, the wage hike pace remains below 3 percent.
About 4,900 unions in Japan secured a 2.07 percent increase in average monthly pay in this year’s wage negotiations, said Rengo, the largest umbrella organization of labor unions. That compares with a 2.2 percent gain in 2015, the most achieved during Abe’s tenure.
However, most workers are not represented by unions in Japan, as the unionization rate stood at 16.9 percent last year, according to the labor ministry.
For all workers, overall cash earnings added just 1 percent in May from a year ago while real wages, adjusted for inflation, fell 1.8 percent. That means inflation is eroding people’s spending power, which might hurt consumption.
Increases in the minimum wage help households, but it also means higher costs for firms, NLI Research Institute senior economist Tsuyoshi Ueno said.
Unless companies improve their productivity, it could lead to cutbacks in part-time workers’ hours, and does not necessarily lead to positive economic growth, he said.
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