Takayuki Okuyama, president of a plastic parts company with nine employees, questions whether Prime Minister Shigeru Ishiba's pledge to significantly raise Japan's national average wage is the right move, as he believes such a goal would squeeze small businesses like his.
Okuyama, 48, leads Nissindenki Co in Tokyo's Ota Ward -- home to more than 3,000 small-sized manufacturers -- and has raised his workers' salaries nearly 3 percent each spring. In contrast, major companies recently implemented salary increases of more than 5 percent, their highest in over three decades.
"As I'm responsible for protecting my employees, I want to increase their salaries in line with the social trend," he said, adding, "But with our business conditions unchanged, what can I do?"
Amid higher food and energy costs due to Russia's invasion of Ukraine as well as a weak yen, which pushes up import prices, Ishiba's predecessor, Fumio Kishida, pledged to achieve salary hikes that outpace rising prices, aiming to raise Japan's average minimum hourly wage to 1,500 yen by the mid-2030s.
Ishiba took office in early October and vowed to continue Kishida's economic policies. He even brought forward the timing of achieving the wage hike goal to the end of the 2020s.
"It appears to be extremely challenging to meet the target, which requires salaries to rise more than 7 percent annually. Potential side effects, including backlash from companies, cannot be overlooked," said Takuya Hoshino, chief economist at the Dai-ichi Life Research Institute.
The Liberal Democratic Party, led by Ishiba, forwent mentioning any specific timeline or wage increase target in its promises for the Oct 27 House of Representatives election, seemingly to avoid potential opposition from small businesses, which are already struggling to secure funds to raise salaries and retain workers.
The leading opposition Constitutional Democratic Party of Japan has also set a wage increase target of the same level. But the party, which receives support from labor unions, also did not mention when to achieve it with several other opposition parties following suit.
As the government seeks to establish a positive cycle of wage and price hikes and ensure an exit from Japan's chronic deflation, major companies agreed to increase monthly pay by an average 5.58 percent in annual labor-management negotiations this spring, surpassing 5 percent for the first time since 1991, according to the Japan Business Federation.
Attention has turned to whether this trend will spread to small and medium-sized companies, which have employed an estimated around 70 percent of workforce in the country.
Japan's average minimum hourly wage for fiscal 2024 came to 1,055 yen, effective from October. It marked an increase of record 51 yen, or 5.1 percent, from the previous year.
To achieve Ishiba's goal of 1,500 yen by 2029, the average minimum wage needs to keep rising 7.3 percent every year, according to an estimate by Tomoya Suzuki, a researcher at the NLI Research Institute.
But many smaller businesses have been already under pressure to raise salaries, largely to prevent employees from leaving for better conditions.
The number of bankruptcies due to lack of employees increased 1.8-fold in the April-September period from a year earlier to 148, according to credit research firm Tokyo Shoko Research, highlighting the significant impact on business from surging wages.
Adverse impact from wage hike pressure has been increasingly felt in regional economies.
"Many companies in Shimane can't easily raise salaries by an additional 500 yen," Tatsuya Maruyama, governor of the western prefecture, told a recent press conference, expressing skepticism about the feasibility of Ishiba's drive. "It can't be a realistic pledge unless accompanied by plans for how to achieve it."
Shimane has the second-smallest population among Japan's 47 prefectures, after its neighbor Tottori, which includes Ishiba's home constituency.
The central government has introduced incentives for companies to raise salaries, including tax cuts for those that do so. But it could take time before effects of such programs are felt by companies that are desperate to secure funds for wage hikes.
Okuyama of Nissindenki said his company is striving to pass on rising production costs to its clients, as recommended by the government. But he has found it challenging to justify the extent of price increases to them.
Not all companies have fully utilized the state's support programs, Okuyama said, because they lack the necessary information or sufficient time to complete the required paperwork.
Analysts say that if Ishiba is to achieve rapid wage hikes, he also needs to deal with side effects that could result in companies without sufficient earning power being weeded out.
Dai-ichi Life's Hoshino said that Ishiba, who previously served as Japan's first regional revitalization minister, has seemingly sought to accelerate the pay hike drive to stimulate regional economies.
However, "an extremely drastic push could leave important small and medium-sized firms in a precarious position," Hoshino said.
And this could backfire on Ishiba as owners of such smaller businesses are seen as key supporters of his LDP.
NLI's Suzuki said that despite Ishiba's focus on supporting less affluent citizens, "what may arise is a tough environment where those who cannot afford to pay higher salaries will be forced to close their businesses or be absorbed and merged."
© KYODO
20 Comments
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dagon
I wonder if Okayama shacho's compensation and that of his executives also rises and stagnates in accordance with 'business conditions'.
And has done so through the last 30 years of rising Japan Inc. corporate profits and stagnant wages.
Article sounds like it is preparation for the inevitable announcement by Ishiba that ' Strong wage hikes are our heartfelt goal that we have urged for. But, regrettably business conditions are too severe at the moment'.
kurisupisu
Kyodo is making a mountain out of a molehill.
How many Japanese pms have pledged and not delivered?
It’s amazing to imagine that politicians are actually able to change the laws of Japan by voting and therefore have the ability to change society-truly amazing!
JeffLee
Stingy employers is what is holding the economy back. If those companies don't want to pay more, then their employees should be encouraged leave and find better jobs, given that there are 130 jobs for every 100 seekers these days.
deanzaZZR
I'm sorry. I thought wages were set by the job market in capitalist economies.
kurisupisu
How many of those jobs out there are 3k, temporary or part time?
Quite a large number I imagine.
socrateos
deanzaZZR
The government is always a part of the market. A market without government exists only in a state of anarchy.
Simon Foston
I won't shed any tears. It's already long overdue.
Ricky Kaminski13
Small business attempting to whine about having to offer a living wage to their employees. Then the opposition party, who is supposed to represent the little guys and the left step forward with this,
Pretty much what the LDP has been doing for the last few lost decades, ‘asking companies to raise wages, pretty please, but when you’re ready (wink).
dbsaiya
Ishiba can say all he wants, just like he did before the LDP election. Then as soon as he took office he flipped. LDP will say anything now to garner votes for this election. People need to vote out the LDP.
deanzaZZR
OK. What economic and/or fiscal policies has Ishiba proposed to increase wages? The biggest driver of wages is increased productivity. We all know that has been in the tank in Japan for decades.
Mr Kipling
It was not the invasion but the pointless, failed sanctions that pushed up food and energy costs for the countries putting on the sanctions.
MarkX
I know this is a silly thing to say, but when we were in those 30 years of deflation, prices were lower, and people seemed to be able to make a living. Now that we have attained that holy grail of inflation, everything has gone to hell in a handbasket.
As JeffLee always says it is the big companies at the top that have to pay more to the smaller manufacturers, who in turn can pay their workers, but instead they sit upon tons of capital which only benefits a few.
Temyong
The wage hike will cause unemployment to rise, closure of small business, and basically a slow down of the economy. The rise of wages in California actually will close all fast food chains.
fxgai
That sounds like a normally functioning business environment to me, no?
Japan has been too attached to the idea of stability, rather than dynamic change. Those business that lose out to competition or various sorts are no loss, and those that are put out by it simply have to move on to that next opportunity in their lives.
GBR48
A political desire is irrelevant if there is not a legally mandated minimum wage. Even then, only the minimum wage is mandated. Anything above that is set by employers. Above any minimum wage (which Japan may not even have) employers operate on a mix of market forces and/or greed.
Ishiba may be right for some companies and some staff, that the company should be paying more and taking less profit, but for small businesses, the margins can already be too small. Whenever the wider economy is damaged or restricted (tariffs, sanctions, declining Yen), they won't have the cash to raise wages.
In larger companies, the gradient of the pay pyramid is the problem. The higher wage earners should be earning less and the lower wage earners (who do most of the work) should be earning more. But even implementing legal restrictions on high earners won't work, as they will simply cheat and bag the rest as perks or bonuses.
A higher minimum wage offers some benefit, but may drag more people down to it, or initiate staff cuts.
The only real solution is to empower workers by making it easier for them to switch jobs (finding a better employer), be self-employed and hold more than one job. I can't see them doing that as it would break some of the basic tenets of the Japanese workplace. So, nice ideas, but nothing will happen.
3RENSHO
"In larger companies, the gradient of the pay pyramid is the problem."
A very, very observant, salient posting by JT poster 'GBR48'...
YeahRight
I went to my local AEON last night to purchase my chu-hi only to find that they had increased the price by about 10%. I was shocked since it was well past the normal October 1st date of price increases. The clerk was apologetic and said that she was surprised, too. I asked her if she had gotten a raise, for that might have made the price increase somewhat justifiable, but of course she hadn't. It isn't just the small companies, it's also the employees of the big companies that are being screwed.
SaikoPhysco
Collge grads are making Y3 to Y4 mil a year in Japan... in the UK, USA, Australia, France, Germany and Canada they start a double to triple the starting salary of those in Japan. You talk to the average 40 to 50 year old salaryman in Japan and the say... Japan has become poor. The major reason Japan has become poor is the lack of wage growth for the last 35 years. The govt. does not want wages to grow and does not want inflation because half of retired people, and the numbers are large, will not be able to afford to live. The won't be able to live because they've all been screwed by the govt. pension system, and by financial institutions that manage retirement funds. The people of Japan are too docile, they won't fight for themselves because it is ingrained in their culture to stay quiet and endure... the perfect combination for the Govt. and Corporations to take advantage of them.
deanzaZZR
Minimum wage in my county is $16.00/hour. There are just as many fast food restaurants (way too many) as there were 5 years ago, likely more actually with new chains like Popeyes and Chick-Fil-A moving in.
Simon Foston
Therein lies a big part of the problem. The LDP will always chicken out of tough decisions that alienate their small business backers.