Issue:
September 2024 | Japan Media Review
Corporate profits and shareholder payouts are to blame for Japan’s scandalously low minimum wage
At the end of August 2023, Prime Minister Fumio Kishida announced that the government would endeavor to increase the average nationwide minimum wage to ¥1,500 an hour by "the mid-2030s." In 2023, the nationwide average minimum wage had exceeded ¥1,000 per hour for the first time ever, rising to ¥1,004, so the goal was to increase it by 50% in about 10 years. Though Kishida made it sound like a major undertaking, opposition parties were unimpressed, since most had included a ¥1,500 minimum wage plank in their platforms during the 2022 upper house election. The Constitutional Democratic Party of Japan says that ¥1,500 should be achieved as soon as possible, while the Japan Communist Party insisted it be introduced "immediately".
In July, NHK reported that the labor ministry had determined that the average minimum wage this year would be ¥1,054, a ¥50 increase over the previous year and the biggest ever, so Kishida's goal may be reachable at this rate. It's important to note that each prefecture sets its own minimum wage, and since cost of living indices vary from prefecture to prefecture, minimum wages can also vary greatly. Tokyo and Osaka have higher minimum wages, while those in prefectures such as Yamagata and Tottori are much lower.
The ministry said it understood that "some companies" could not realistically raise prices to boost wages, but since the consumer price index (CPI) has been rising by about 5% annually in recent years, workers at the bottom of the wage scale – those who earn minimum wage or close to it – are more adversely affected.
The big news this year has been the large increase in wages for major company employees through the annual springtime union negotiations (shunto), which exceeded 5%. The ministry's goal is to extend these increases to those who work for small and medium-sized companies. Consequently, labor advisors in each prefectural government will, at the urging of the ministry, discuss with private management raising the minimum wage again this October. One union representative told NHK that the shunto results should have a positive effect on the negotiations, regardless of the prefecture.
Management representatives are objecting to the push for wage increases. One who serves on a ministry panel to study the matter told NHK: “We need to look at how much of a burden these increases impose on small and medium-sized companies above their ability to pay wages.”
The Liberal Democratic Party's plan is to boost the minimum wage by 3% every year since 2013, when Shinzo Abe was prime minister, although most economists say it isn't nearly enough. It is almost impossible to support a family on ¥1,000 an hour, and even supporting one person in a major city is a challenge. Japan's average minimum wage is the lowest of any major economy. According to the cabinet office, the minimum wage in Japan is 45.6% of the median hourly wage of all full-time workers, while in Europe and South Korea the same portion is 52-60%. As one union executive told NHK, anyone working for minimum wage in Japan can't even earn ¥2 million a year, which means anyone who does make minimum wage is by definition a member of the "working poor".
Initially, Kishida pledged to somehow double incomes, a plan that no one took seriously. As a result, according to an article in the Tokyo Shimbun last September, he adopted policies that had been pushed by opposition parties and labor unions for years - to increase the minimum wage to ¥1,500. The Tokyo Shimbun's implication is that borrowing the policy this late in the game ignores how much inflation has reduced the buying power for people at the bottom of the wage pyramid. Kishida, and perhaps the LDP in general, fail to comprehend this dynamic with their call to get the minimum wage 50% higher in 10 years. Most economists don't think it will really help those who make minimum wage or slightly higher. As one political journalist told the newspaper, Kishida is the kind of prime minister who adopts policies depending on public opinion, and so doesn't necessarily interrogate their practicality. The ¥1,500 goal by the mid-2030s has become a "chant" that loses power over time.
To really understand why the minimum wage has not kept up with the cost of living, you have to go back to the end of the bubble era, when the government relaxed employment regulations to allow more companies to hire non-regular workers, who don't normally belong to unions, whether company-based or industry-based.
According to the book Low Wages by journalist Satoshi Tokairin, the number of non-regular employees, meaning workers who do not have benefits and can be laid off and hired at will, increased dramatically around 1994 when Japan's storied lifetime employment system was reviewed amid a stagnant economy. Presently, non-regulars make up 40% of Japan's work force. In 2022, male non-regular employees numbered 6.69 million, or 22.1% of all male workers; female non-regulars numbered 14.32 million, or 53.3% t of all female workers. The tax agency reported in 2021 that the average income of a non-regular employee was ¥1.97 million – ¥2.66 million for men and ¥1.62 million for women. The average salary for regular employees was ¥5.08 million. That means that non-regular salary is less than half of what it is for regulars.
The wage gap has not changed at all over the past decade, and the reason is usually pinned on married female non-regulars, who make up the bulk of non-regulars in general. These women are simply "supplementing" household income with part-time jobs, and thus greatly dilute the non-regular wage pool. But statistics show the demographic is dropping notably, and yet the overall wage situation for non-regulars is not changing. This argument doesn't even take into consideration the outmoded "#3 pension system" that rewards women who work part-time for low wages since they don't have to pay into the national pension system if they make below a certain amount and are married to a regular employee. Employers have been taking advantage of this system for decades in order to pay staff as little as possible.
For years, the LDP and the business world has defended the increased reliance on poorly paid non-regular workers with the discredited "trickle down" theory. They say companies that make bigger profits eventually use the money to improve the lives of stakeholders – meaning employees. But all indications show that corporations are hoarding cash and rewarding shareholders instead. This phenomenon is almost a cliche in neoliberal economic systems, and yet Japan seems the least cognizant of how it suppresses workers on a permanent basis. In 2021, corporate cash assets in Japan totaled ¥516.5 trillion, having expanded 50% since the dawn of the second Abe administration in 2012. Of the major companies whose capitalization exceeds ¥1 billion, from 2000 to 2020, the amount of reserve cash in their coffers increased by 85%, from ¥48.8 trillion to ¥90.4 trillion. Ordinary profits similarly increased during this period by 91%; stock dividends by a whopping 483%. Meanwhile, outlay for personnel decreased 0.4%. Even small and medium-sized companies, for whom most minimum wage workers toil, saw their profits increase over that 20-year period, though not by as much. However, their dividends increased by 216% and personnel outlay decreased by an astounding 15.9%.
This shift of corporate assets away from employees to stockholders is the main reason why wages have not increased in line with inflation, especially for those at the bottom of the earnings rankings. Put simply, workers are not sharing in the success of their employers.
An earlier Tokyo Shimbun article in February 2023 centered on an interview with Takeo Naruse, former executive director of Nikkeiren, which would later morph into the business lobby Keidanren. He described the turning point for business in 1995, when policymakers called for increased reliance on non-regular employees. He says he now regrets that Japanese businesses "gave up on the idea of fostering valuable workers". Prior to this new policy, employers "cherished their workers," but since then all they do is "accumulate wealth without any mind toward the betterment of their human resources." He says that in-house company-based unions were "tamed" in the 1970s after the oil crisis, when they were constantly being told by management that they had to check wage increases so as not to ignite inflation. Since then, management has had an easy time convincing workers that wage stagnation is an important tool to guarantee corporate growth and international competition.
Another interviewee in the article, Tsuyoshi Takagi, former chairman of the union association Rengo, said the bottom really fell out in 2004 when the law made it possible to hire workers from temporary agencies for manufacturing work, the idea being that industry needed to cut personnel costs to better compete overseas. Because these workers were being paid so poorly, consumption suffered and economic stagnation continued. "We established a place in Rengo for non-regular employees," Takagi said, "but as their numbers increased, it lead to a general decrease in wages across the board. I should have expected as much." He describes walking through Hibiya Park in Tokyo in 2008, the year the recession hit the hardest, and seeing "many people living in tents." He regrets not fighting this trend sooner. As it stands, only 10% of non-regular employees are represented by some kind of labor union.
Before the wage increase won by labor unions this spring, real earnings on average were falling year-on-year for more than 24 consecutive months, since wages could not keep up with inflation. The July 28 issue of the Japan Communist Party newspaper Akahata stated that the government should rectify this matter not through tax cuts that encourage higher wages, since such a move would only affect large companies, but through direct subsidies to small and medium-sized companies so that they can increase wages. This would give employees at the bottom more money, which they would undoubtedly spend, spurring consumption. The government could fund these subsidies by taxing the cash that so many large companies have hoarded over the years. In any event, the minimum wage must be raised as soon as possible to prevent those at the bottom from falling into deep poverty, if they aren't there already.
Sources
Philip Brasor is a Tokyo-based writer who covers entertainment, the Japanese media, and money issues. He writes the Japan Media Watch column for the Number 1 Shimbun.
