Can Raising Japan's Minimum Wage Accelerate Wage Growth?
IMF Blog, November 28, 2016
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- Can Raising Japan's Minimum Wage Accelerate Wage Growth?
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Bibliographic details
- Authors: Luc Everaert, Giovanni Ganelli
- Published: November 28, 2016
Context and motivation
- Japan’s minimum wage is 798 JPY ($6.52) per hour, lower than many other advanced countries, including the United States, and among the lowest relative to the average wage.
- Japan has endured 15 years of deflation; boosting consumer spending through higher wages is seen as important to reinvigorate growth.
- Large gaps exist in wages and job security between regular and non-regular employees (part-timers, contract workers and temporary staff).
Policy measure described
- Authorities have put in place plans to increase the minimum wage by 3 percent on a yearly basis.
- This plan would result in a hike from 798 JPY to over 1,000 JPY per hour by the year 2023.
Main empirical findings
- The population working below or at the current minimum wage is estimated around 10 percent of the working population.
- Analysis using data for seventeen years (from 1997 to 2014) finds that the planned 3 percent policy would result in an additional 0.5 percent increase in average wages per year.
- Mechanisms identified:
- Firms confronted with having to raise pay (example: from $7 to $8 an hour) may retain current workers given Japan’s tight labor market (record low unemployment and record high labor shortages), leading to higher average wages.
- Firms might substitute lower-paid workers with more skilled workers who command even higher wages, also pushing up average wages.
Assessment relative to macro targets
- Bank of Japan’s inflation target of 2 percent.
- Assuming productivity growth of 1 percent, wages would need to grow by at least 3 percent to have an impact on the inflation target.
- The projected additional 0.5 percent per year from the minimum wage policy, while significant, would still fall short of the required 3 percent wage growth.
Policy recommendations and complementary measures
- Complement the minimum wage increase with:
- Higher public wage increases.
- Stronger inducements to raise private wages.
- Undertake structural reforms as part of a broader “reload” package, including:
- Measures to reduce labor market duality between regular and non-regular workers.
- Policies to give more bargaining power to workers.
- Removing remaining distortions in the tax and social security system that discourage full-time work, mostly of women.
- Income policies alone are unlikely to revitalize the economy; they should be combined with appropriate monetary and fiscal policy.
Luc Everaert, Giovanni Ganelli; November 28, 2016. IMF Blog.
Content in this bundle
- 日本の最低賃金引き上げは、賃金全体の伸びを加速できるか; ルーク・エバアート、ジョバンニ・ガネリ; iMFdirectブログ2016年11月28日
