Japan aims to raise minimum wage to boost economy http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyid=2007-03-13T054057Z_01_T263099_RTRUKOC_0_US-ECONOMY-JAPAN-MINIMUMWAGE.xml&from=business
Tue Mar 13, 2007
By Yuzo Saeki
TOKYO (Reuters) - Japan's cabinet on Tuesday approved an updated minimum wage bill, the first major revision in nearly 40 years, as part of the government's efforts to close the gap between between rich and poor and boost economic growth.
The bill, which must be approved by Parliament, does not stipulate how much the minimum hourly wage should be raised from the current national average of 673 yen ($5.73) and leaves the details to regional wage-setting committees, making economists skeptical about any immediate improvement in wage conditions.
But it would sharply raise fines on employers who pay workers below the legal standard.
"The government is effectively postponing the issue," Takahide Kiuchi, senior economist at Nomura Securities, said in a research report. "The government says it aims to boost the minimum wage on a scale that has not been seen in the last 40 years, but its plan only stipulates that the minimum wage will be decided at round-table committees," he said. If approved, the revised bill is expected to take effect by the summer of 2008.
Prime Minister Shinzo Abe and his administration have been pressed to put forward measures to improve the livelihood of low-wage workers amid growing public outcry that income disparity is increasing despite the current economic recovery.
The bill comes at the time when labor unions of major Japanese companies are pressing management for wage increases in the next fiscal year starting in April that reflect brisk earnings in light of a steady economic recovery.
Top-ranking corporations such as Matsushita Electric Industrial Co. Ltd. (6752.T: Quote, NEWS , Research) and Toyota Motor Corp. (7203.T: Quote, NEWS , Research) are expected to raise monthly salaries per person by 1,000 yen, according to Japanese media.
Takeshi Minami, chief economist at Norinchukin Research Institute, said the revised minimum wage bill would increase the financial burden on small enterprises.
GROWTH POTENTIAL
Raising the minimum wage is also part of the government's economic policy to boost the nation's growth potential. The government argues that by raising the lowest wage level, it would help small to mid-sized firms attract able workers and thus increase companies' productivity.
The government plans to set up the round-table committees next month as entities separate from existing wage-setting committees in hopes of obtaining proposals on the wage rules with a focus on economic growth. Kiuchi said the government's policy to improve the general economic level of those in low-income brackets is ill defined because it is basically focused on the supply side, and success is uncertain.
With the revised bill, the penalty on companies that fail to comply will jump to 500,000 yen per worker from the current 20,000 yen.
Japan introduced the current system of minimum wages in 1968, with different wage levels prevailing in different geographical areas. Some industries, such as steel, automobile and retail, also set their own minimum wages. Where there is a gap between the geographical rate and the industry-based rate, employers are required to pay the higher of the two. The bill also requires prefectural wage-setting committees to take welfare benefits into account when deciding wage standards.
This provision is aimed at encouraging higher minimum wages as welfare benefits in some metropolitan areas are more than can be earned by working at minimum wage.
In Tokyo, the minimum wage is 719 yen per hour, the highest in Japan. Monthly income from working eight hours a day for 22 days would be about 126,500 yen ($1,077). That is lower than welfare benefits of around 137,000 yen per month for singles between the ages of 20 and 40 residing in the city's central districts.
Japan's average minimum wage has been rising steadily through most of the past decade, despite years of deflation. It has climbed from 637 yen in 1997 to the current 673 yen, about 11 percent higher than the United States' federal minimum wage of $5.15, based on current exchange rates. But the U.S. Senate voted last month to raise the federal minimum wage for the first time in a decade, following a similar move by the House of Representatives in January. The Senate approved legislation to boost the federal wage standard over two years to $7.25 per hour and provide small business tax cuts.
The British government said last week that it would raise the minimum wage for over-21s by 17 pence to 5.52 pounds per hour in October.
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