August 01, 2019

Government panel in Japan proposes minimum wage increase

Government panel in Japan proposes minimum wage increase

A government panel in Japan proposes raising the average hourly minimum wage to ¥901 ($8.30)—the largest wage increase in the country for almost 20 years.

Currently, each of Japan’s 47 prefectures determines their own rate of hourly minimum wages. Following the proposal, each prefecture will recommend revised minimum wages in August taking into account the government panel’s recommendations and will adopt the new wage level in October.

The proposal will see a disparity in minimum wage levels between rural and urban areas, with cities experiencing a larger increase. In Tokyo and Kanagwa Prefecture, the hourly minimum wage will exceed ¥1,000—a first for any prefecture—whereas in 17 other prefectures it will remain closer to ¥700.

In the past, disparities between urban and rural wages have resulted in the migration of workers into cities in search of employment, which has resulted in the reduction of regional economies. There is also a risk of damaging the management of small and medium-sized companies who will feel the strain of increased wages, which could potentially lead to job cuts.

Indeed, David Neumark argues that, “a good deal of evidence indicates that the wage gains from minimum wage increases are offset, for some workers, by fewer jobs. Furthermore, the evidence on distributional effects, though limited, does not point to favorable outcomes from minimum wage hikes, although some groups may benefit.” Japanese analysts however, suggest that the majority of people working near the minimum wage line are mostly part-time workers and the wage hike will improve their standard of living.

Labor unions and management both agreed with the wage increase, taking into consideration, the planned 2% tax increase and the country’s labor shortage due to a rapidly aging population. As Daiji Kawaguchi and Hiroaki Mori state, in The labor market in Japan, 2000–2018: “The size of the working-age population declined between 2000 and 2018 by slightly more than 11 million, from 86.6 to 75.5 million.”

If the government maintains the current pace of wage increases however, it will achieve its goal of raising the minimum wage to ¥1,000 by 2023.

Read more articles about the effects of minimum wages.