Pandemic must not be used as pretext for holding down minimum wage
End poverty, reduce income inequality, and revitalize local economies by realizing uniform national minimum wage system
--Zenroren’s opinion on ways to secure minimum wage enabling everyone to make a ‘decent living’ by working 8 hours a day--
National Confederation of Trade Unions (Zenroren)
May 31, 2021
Three points of view for minimum wage increase
With the Tokyo Olympics and Paralympics approaching, the Central Minimum Wage Council began discussing the revision of the benchmark minimum wage on May 25. Local minimum wage councils are set to discuss the revision of their respective regional minimum wages.
Poverty is increasing and economic inequality widening amid the coronavirus pandemic. The National Confederation of Trade Unions (Zenroren) calls on the Central Minimum Wage Council to recommend the regional minimum wage be increased to 1,500 yen per hour to reduce poverty and economic inequality and help revitalize the regional economy. It also requests the council to decide to redress income gaps with a view to establishing a uniform national minimum wage system.
The first point we want to stress is that most frontline essential workers, who are the key players in preventing the spread of the coronavirus, are low-paid contingent workers on precarious employment. About 1.3 million workers or 22.2 percent of retail workers, including supermarket workers, are extremely low paid (less than 1.15 times the minimum wage). Raising the minimum wage is necessary to support these people and sustain the Japanese economy. These contingent workers are working in constant fear of losing their jobs or of being left without income that supports households without savings. They get caught up in fear of being infected with the coronavirus. Employers, including those at small- and medium-sized businesses, must not obscure their responsibility for securing workers’ employment and livelihoods. It is necessary for the employers to provide job security and pay a living wage for eight hours a day.
Second: Recovery from the economic slump amid the coronavirus pandemic may need a long time. Temporary benefit payments are not enough. The need is to take steps to make the lives of all workers and people sustainable by raising the minimum wage to redress pay inequality and by establishing regional economic cycles from the bottom up.
Third: The minimum wage is being raised in Europe as well as in the U.S. with a view to a post-pandemic economic recovery. U.S. President Joe Biden has signed an executive order for raising the minimum wage for workers at federal contractors from 10.95 dollars to 15 dollars.
In France, the minimum wage was raised in January 2021 from 9.76 euros to 10.03 euros. Germany raised its minimum wage from 9.35 euros to 9.5 euros in January 2021 and to 9.6 euros in July 2021, 9.82 euros in January 2022, and 10 10.45 euros in July 2022. Britain’s minimum wage (for workers aged 25 and over) was raised in April 2021 from 8.72 pounds to 8.91 pounds.
In Japan, many contingent workers have lost their jobs. Wage restraint linked to the minimum wage being deferred is hampering the country’s “economic recovery.” As a result, people have not recovered their purchasing power and the country’s economy is still unable to get out of deflation. The mistake of wage restraint to get over an economic crisis must not be repeated.
Keep current levels vs. raise
On April 16, 2020, the Japan Chamber of Commerce and Industry (JCCI) and two other business organizations representing small- and medium-sized businesses expressed its opposition to the minimum wage increase. In a “statement of request concerning the minimum wage,” it called for “an acceptable levels of the minimum wage to be adopted based on clear reasons, with a possible freeze in sight, reflecting the current critical economic situation.” The prime minister at the time, Abe Shinzo, in response sought to restrain the minimum wage increase on the grounds that the economy was worsening due to a coronavirus outbreak. He said that “protection of jobs should come first.” As a result, the Central Minimum Wage Council recommended an increase of only one yen. This year, the JCCI and two other business organizations have requested that the present minimum wage levels be maintained by taking into account the current economic sentiments and the state of local economies and the employment situation.
Discussion on raising the minimum wage has also started within the government. On May 12, non-parliamentary members of the government Council on Economic and Fiscal Policy came up with a proposal that the minimum wage be raised by more than three percent this year. They say they want this recommendation to be reflected in the government’s basic guidelines for implementing economic and fiscal policies.
To begin with, the root cause of the spread of the coronavirus infections that broke out last year and the present economic crisis is the neoliberal policies proclaimed as “Abenomics,” which served the best interest of large corporations and shareholders by abusing working people and small- and medium-sized businesses to make profits and undermined the foundations of the Japanese economy. The need now is to change policy to base the government’s economic policy on the effort to increase personal consumer expenditure, which accounts for nearly 60 percent of GDP, shifting away from large corporation-first policy and the kind treatment of the wealthy. Wage increase is called for along with a reduction in the consumption tax. A bold government expenditure to help small- and medium-sized businesses, which would expand nationwide a favorable economic cycle, should be the way to avert an economic crisis and achieve sustainable economic development.
As part of the effort to get over the present economic crisis in response to the efforts by small-and medium-sized businesses, Zenroren urges the government to raise the minimum wage and increase the necessary support to implement it.
Below is Zenroren’s opinion regarding the economic downturn amid the coronavirus pandemic and problems involved in the present minimum wage system.
1. We call for raising the minimum wage to end low wages that threaten the right to live
Many of essential workers are contingent workers
Amid the spread of coronavirus infections, low-paid contingent workers’ lives are seriously affected. Their jobs are in jeopardy and their income falling sharply due to the shortening of store hours and temporary business closures as required by the repeatedly declared state of emergency, under which those workers have been left without adequate compensation.
In a time of pandemic, attention is focused on the importance of essential workers, who are providing support to people’s living. Everyone knows that many of these frontline workers are low-paid contingent employees. Their jobs are so precarious that they are in constant fear of losing jobs. Many of them fear that they might lose sources of income that is indispensable for households without savings. They are also in fear of being infected. These problems should be seen against the background of an expansion of the use of contingent workers, uncertainty about their future arising from precarious employment, and the widening economic inequality and poverty due to the prevalence of low-wage work.
The urgent need is to provide compensation for their lost wages or income until the pandemic comes to an end. It is also necessary to provide small- and medium-sized businesses and independent contractors with compensation for fixed costs which are needed to keep their business going and to take such bold steps as reduction or exemption from paying social insurance contribution and consumption tax. These measures should not be regarded merely as means of boosting the economy. They should be emergency measures that need to be implemented swiftly and securely in a concise manner for protecting people’s right to live.
Many of near-minimum wage workers are women
Among workers who are paid as low as the minimum wage (less than 1.15 times the minimum wage), there are about 3.01 million female workers, who account for about 22.51 percent. The number is 2.7 times that of male workers, and female part-time account for 41.20 percent (or 2.38 million, which is 3.5 times the number of male workers). The rate of near-minimum wage workers is particularly high among essential workers. There are also many low-paid female workers in the wholesale and retail sector (980,000 or 34.48 percent) and the hotel and restaurant industries (530,000 or 46.74 percent). Most of them are hard hit by the pandemic.
40 percent of single-person households are without savings
According to the Central Council for Financial Services Information’s “Public Opinion Survey on Household Financial Assets and Liabilities (2019),“ the rate of households with zero savings was 38 percent of single-person households and 23.6 percent of households with two or more-members. Nearly 40 percent of single-person households and 25 percent of households with two or more members are without savings.
The coronavirus pandemic has had serious impacts on these low-income households without savings. Many of them are low-paid contingent workers, who earn a living on precarious jobs. They are living from hand to mouth. Contingent workers are supporting the key part of the essential work. But their wages set at minimum wage level are too low for what they do to support the social infrastructure. It is necessary to give a substantial raise for these people for their work to support the foundations of social life. Measures in support of small- and medium-sized businesses, which help these essential workers, should be increased and improved as socio-economic policies instead of doing so within the existing system.
Safety net must be more than helping people barely make ends meet
The IMF (International Monetary Fund) defines the “social safety nets” as a program to protect individuals or households from the two unfortunate consequences: chronic poverty caused by chronic inability to work or earn a living and temporary poverty resulting from falling into marginable state in terms of ability to get work and income for survival (IMF Spring Meeting, April 2, 2002). In order to not tolerate the existence of the working poor, the minimum wage system is in place under Article 25 of the Constitution of Japan: “All people shall have the right to maintain the minimum standards of wholesome and cultured living.” If this meaning is to be observed, safety nets must be established in accordance with the relevant constitutional provisions. Paragraph two of Article 25 makes clear that the government has the role to play in dealing with this issue, which should be discussed not just in terms of individual companies’ ability to pay. The task is to press the government to do it.
2 Economic recovery is only possible by raising the minimum wage from bottom up and expanding domestic demand
No more mistakes of unilaterally firing temp workers or restraining wages. which happened in the wake of the Lehman Brothers bankruptcy
In the 2008 crisis triggered by the Lehman Brothers failure, European countries as well as the United States got over the trouble through expanding domestic demand by raising wages for workers. Japan was the only country among the advanced capitalist countries to let employers unilaterally terminate contracts with temporary agency workers, undermining the employment. They also restrained wages to secure corporate earnings. That was the way they chose to achieve “economic reconstruction.” As a result, people did not recover their purchasing power, and the Japanese economy failed to get out of a serious deflationary economy.
For post-pandemic economic recovery, it is indispensable to substantially raise the minimum wage instead of freezing or restraining in on the pretext of business depression.
Minimum wage and unemployment are not interrelated
The Japan Chamber of Commerce and Industry (JCCI) and two other business organizations on April 15 published their request concerning the minimum wage. Entitled “Given the severe economic situation amid the coronavirus pandemic, the current minimum wage levels should be maintained,” the statement said that it is natural to think that a sharp minimum wage hike can entail the risk of giving rise to unemployment. But the Central Minimum Wage Council has reported that there is no direct link between the minimum wage and unemployment.
David Atkinson, a member of the government Growth Strategy Council, said that Japan has for several years raised the minimum wage by three percent a year but that the number of businesses going bankrupt has decreased and the ratio of job offers to job seekers has increased. He argued that in the light of these facts, it is incomprehensible why people are saying that raising the minimum wage will lead to higher unemployment rates (Toyo Keizai Online, October 9, 2019)
Many people have lost jobs due to temporary closures or the shortening of opening hours that have been requested repeatedly, mainly in the food service and hotel businesses, but the government statistics also suggests that there are no correlation between raising the minimum wage and the unemployment rates.
Rodo-soken estimates: Minimum wage of 1,500 yen would have economic effects
The JCCI says that raising the minimum wage “has direct impact on the financial positions of small- and medium-sized businesses, and imperils the employment and even business survival, which causes concern that the regional economy may decline faster.”
In its proposal for the 2021 Spring Struggle, published in January, the Japan Research Institute of Labor Movement (Rodo-soken) said that increasing the minimum wage to 1,500 yen per hour would generate an additional 26.7 trillion yen in domestic output and an additional 13 trillion yen in added value, and would create 1,695,000 new jobs and that it would generate an additional 2.48 trillion yen in tax revenue.
Increasing wages, including the minimum wage, may mean higher labor costs, but it will have significant economic effects as it can encourage households to spend more, leading up to higher domestic output and benefiting businesses.
3. Minimum wage system should be based on workers’ cost of living
Standard cost of living figures (published by National Personnel Authority) involve inconsistencies
The National Personnel Authority’s standard cost of living calculator is attached to the Central Minimum Wage Council’s recommendation every year. It shows that the standard cost of living for single-person households is the highest in Saitama Prefecture at 162,150 yen a month, followed by Wakayama Prefecture at 155,517 yen. Ehime Prefecture was ranked at the bottom with 74,650 yen. Tokyo’s stands at 126,390 yen, which is 35,760 yen fewer than Saitama. It is also behind Fukuoka Prefecture’s 128,710 yen.
There are more inconsistencies involved in the calculation of the standard cost of living. In 2019, Hyogo Prefecture’s standard cost of living was the highest at 236,300 yen but fell to 87,540 yen in 2020. Wakayama Prefecture was ranked at the bottom at 89,007 yen in 2019 but rose by 66,510 yen in 2020. No explanation is given about benchmark of lifestyle and living standards and the method used for the calculation is not made open, making it difficult to verify the figures. These ambiguous figures should not be used as basis for discussion on the minimum wage.
Survey by Zenroren shows there is no significant regional gaps in minimum cost of living
The JCCI statement says, “If a unified national minimum wage is introduced, small- and medium-sized businesses, which are the main local employers, may face slumps, and workers will likely move to urban areas for jobs.” When Zenroren conducted a survey on the street, asked if a uniform national minimum wage is introduced, will people be motivated to work in local areas, 60 percent of workers said that would motivate them to work in local areas.
The statement also says, “In Tokyo and other Rank-A Group prefectures, the minimum wage is high but the cost of living is also high.” But Zenroren’s minimum cost of living survey using the market basket model (supervised by associate professor Nakazawa Shuichi at University of Shizuoka Junior College) has found that there was little difference in the minimum cost of living between Rank-A Group prefectures and Rand-D Group prefectures. Thus, the argument that the cost of living is higher in large cities is unfounded.
What matters is workers’ cost of living, not employers’ ability to pay
Wages are supposed to be determined by labor contract negotiated between labor and management. This is based on the principle of freedom of contract, which is a major principle of modern civil law. But we also have the Constitution that says: “All people shall have the right to maintain the minimum standards of wholesome and cultured living” and “In all spheres of life, the State shall use its endeavors for the promotion and extension of social welfare and security, and of public health” (Article 25). The minimum wage system was established to guarantee the right to live enshrined in the Constitution’s Article 25, by modifying the principle of freedom of contract.
The Constitution’s Article 27 provides that “standards for wages, hours, rest and other working conditions shall be fixed by law.” It orders the state to protect workers who are in a vulnerable position vis-a-vis the employer. Given the fact that most workers are making a living as wage earners, they need to be guaranteed wages that secure their right to live. Determining wages based on employers’ ability to pay is not what needs to be considered. Difficulty in paying wages is caused by the pricing and distribution systems that are short of levels to secure payment of compensation for labor. Pricing that can ensure payment of living wage is necessary.
Low wages that cause difficulty making ends meet are unacceptable
In a survey conducted by the Development Bank of Japan (DBJ), 90 percent of respondents said they are unable to set selling prices in line with a rise in personnel costs. According to the White Paper on Small and Medium Enterprises in Japan (by the Small and Medium Enterprise Agency), recurring margin is higher at well-capitalized companies. This means that heavily capitalized companies are controlling selling prices and unit prices paid to suppliers while securing profits and that recurring margin is lower at subcontractors and weakly capitalized companies.
This suggests the importance of the idea of the Minimum Wage Act that it is indispensable that wages need to be paid to meet the need for workers to maintain the minimum standards of living wholesome and cultured living, as provided by the Constitution and the Labor Standards Act. Economic depression cannot be used as reason for forcing workers to accept such low wages that are below the cost of living, and to endure hardships and even damage to human dignity.
4. Now is the time to take comprehensive measures to support small- and medium-sized businesses
Fair unit prices to suppliers are manipulated by large corporations
Labor’s share is higher at small- and medium-sized companies mainly because of the lack of fair trading on fair unit prices and because benchmark for compensation for labor is set low rather than because their labor productivity is low.
In B2B (business-to-business) transactions, ordering companies and prime contractors tend to use their superior positions to abuse power to force small- and medium-sized companies to receive orders at low unit prices. As a result, productivity at small- and medium-sized businesses is held low. In “B2C” (business-to-consumer) transactions, with low wages persisting, people are losing enthusiasm and ability to spend money. At the same time, heavily capitalized companies are controlling market prices, leading up to imposition of low unit prices paid to suppliers. These manipulations are not fairly reflected in consumer prices. All this is factor for the country’s economy being unable to get out of a deflationary economy.
Establish fair trading on reasonable prices
The need now is a far-reaching overhaul of the Anti-Monopoly Act to prohibit the abuse of a superior position, strengthen provisions of the two laws on subcontractor-related laws, and strengthen the functions and system of the Fair Trade Commission with a view to establishing fair trading by fair prices and improving laws and administrative power to implement them. It is also necessary to substantially expand measures to support small- and medium-sized businesses to levels in other countries.
While final household consumption expenditure in Japan accounts for 55 percent of real GDP, private capital investment account for around 15 percent. The amount of private capital investment is only one third of household consumption expenditure. Capital investment may be important, but in the present depression, importance should be attached to expansion of domestic demand to generate economic effects and to raising wages from the bottom up.
Freezing or restraining minimum wage hike will only produce negative economic effects
In the economic crisis we are experiencing today, the urgent need is for the government to help business owners and workers securely in a swift manner with making up for losses they incur due to the shortening of store hours or business closures or paying fixed cost, and to repeatedly do it util an end to the coronavirus pandemic.
Freezing or restraining minimum wage increase will only have negative economic effects. Increasing wages from the bottom up is the most effective way to encourage people to spend more. It is necessary to establish a national uniform minimum wage system, close regional gap sand raise the minimum wage to at least 1,500 yen per hour everywhere in the country to meet the minimum cost of living. At the same time, it is indispensable for the administrative authorities to offer small- and medium-sized businesses effective support they need.
Finally, the consumption tax is holding down economic activities. We call for the tax rate to be reduced to below five percent from the present 10 percent.