## Can Raising Japan's Minimum Wage Accelerate Wage Growth?

_IMF Blog, November 28, 2016_

## Source details

**Canonical URL:** [Can Raising Japan's Minimum Wage Accelerate Wage Growth?](https://www.imf.org/en/blogs/articles/2016/11/28/can-raising-japans-minimum-wage-accelerate-wage-growth)

## Other formats

- [Markdown version](/en/blogs/articles/2016/11/28/can-raising-japans-minimum-wage-accelerate-wage-growth/index.md)
- [Structured JSON version](/en/blogs/articles/2016/11/28/can-raising-japans-minimum-wage-accelerate-wage-growth/index.json)
- [Bundle manifest](/en/blogs/articles/2016/11/28/can-raising-japans-minimum-wage-accelerate-wage-growth/bundle-manifest.json)

## Bibliographic details
- Authors: Luc Everaert, Giovanni Ganelli
- Published: November 28, 2016

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### 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.*

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## 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**
  - [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 (Markdown version)](/external/japanese/np/blog/2016/112816j.pdf.md){rel="alternate" type="text/markdown"}
  - [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 (PDF)](/external/japanese/np/blog/2016/112816j.pdf){rel="external" type="application/pdf"}

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## References

- [policies](https://blogs.imf.org/2016/03/13/japan-time-to-load-a-fourth-arrow-wage-increases/)
- [paper](https://www.imf.org/external/pubs/cat/longres.aspx?sk=44412.0)
- [https://www.imf.org/wp-content/uploads/2016/11/japan-minwage-chart.jpg](https://www.imf.org/wp-content/uploads/2016/11/japan-minwage-chart.jpg)
- [reload](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44158.0)

_Source: https://www.imf.org/en/blogs/articles/2016/11/28/can-raising-japans-minimum-wage-accelerate-wage-growth_