+ A

Can this be sustainable?

In other words, raising the minimum wage does not necessarily help the poor.
Apr 09,2018
A banner offering part-time jobs with hourly pay of 1,400 yen ($13) has been gathering dust for several months at a gas station in Tokyo. Part-time jobs that paid 1,200 yen an hour last year started paying 1,400 yen at the beginning of the year. “Even diners pay servers 1,400 yen. We cannot find anyone at 1,200 yen,” the gas station owner said. Convenience and grocery stores and some restaurants mostly pay 1,000 yen to 1,100 yen per hour, but new hires are hard to find with such pay. Wireless carrier NTT DoCoMo recently advertised part-time jobs offering 1,500 yen per hour.

The minimum hourly wage in Japan averages 848 yen, with Tokyo’s the highest at 958 yen. But that’s literally a minimum. No one in Japan would work that amount. Experts first explored demographic factors behind the soaring wages. The working population has been thinning due to a low birth rate and graying society. Then some credited economic vitality from Abenomics that generated demand for work. No one cites the minimum wage hikes as a factor in boosting the Japanese economy. Korean economists who studied the latest phenomenon in Japan are expected to report their findings soon to the economists’ community.

Raising the minimum wage is also an important policy tool in Japan. But the increases have been modest. The multi-layered stimulus measures under the Shinzo Abe government pursue an annual 3 percent gain in the minimum wage. The wage floor that had been 749 yen on average in 2012 rose by 99 yen, a 13.2 percent hike, in five years.

Employers in Japan have not complained about annual increases in the minimum wage as they are able to pay more thanks to some economic recovery. They should be envied by their Korean counterparts, who have been hit hard by a surge in the minimum wage way before economic conditions — and their bottom lines — improved.

The toll from the 16.4 percent hike in the minimum wage this year in Korea has been disastrous. Policymakers may be pleased with themselves, but the business community can hardly agree. The sudden rise in wages has pushed up consumer prices, worsened the financial condition of small and mid-sized enterprises, and made jobs scarcer for those living off such precarious work.

If a policy shows undisputed flaws after a year-long experiment, it needs to be fixed. The misleading figures should be addressed first. In Japan, regular transport and lodging expenses are counted in the minimum wage. It is not so in Korea. Korea also compensates for a full day if a part-timer works for seven consecutive days. Japan does not. In essence, Korea’s minimum wage is above the Japanese average and is almost as high as Tokyo’s.

Is our labor productivity really worth the pay? According to the Japan Productivity Center, Korea’s labor productivity level ranked 31st among 35 members of the Organization for Economic Cooperation and Development in 2016. In value upon reflecting purchasing power, Korea’s productivity was worth $33.20 per hour, a third of Ireland’s $95.80, which was ranked highest. Japan’s was also 38 percent higher than Korea’s. Despite low productivity, financial rewards have gone up through a forced push by the government. Can this be sustainable? The market mechanism could be disrupted if wages shoot up with no connection to productivity. The upsets are bound to spill over.

Enterprises are strongly protesting the forced march towards the government’s goal of achieving a 10,000 won ($9.40) hourly minimum wage. Even if there is a target, rises should be incremental. Studies show that minimum wage increases did not discourage hiring in the United States and the U.K., but that’s because the increases were made gradually. The market cannot follow if rises are too steep. Yet the Korean government is sticking to its existing wage scope and increased pace.

The minimum wage policy can hardly be regarded as just. According to the Korea Development Institute, about 35 percent of the labor force earning the minimum wage falls under the poorest category. But in Japan, the share is even lower. Joint research by Tokyo University and Hitosubashi University found that only 15 percent on the minimum payroll belonged to the low-income households with annual incomes of less than 3 million yen. Half of them lived in families with combined earnings of 5 million yen or more. A majority of minimum wage-earners in Japan were simply housewives or young people working for extra cash. In other words, raising the minimum wage does not necessarily help the poor.

Many studies have proven that higher minimum wages cannot be a remedy to address poverty. Sticking to it is something like firing firearms in the air. Smart bureaucrats must know this. They dare not talk back for fear of losing their jobs. But their self-delusion and cowardice will cause a hemorrhage in tax money.

JoongAng Ilbo, Apr. 6, Page 31

*The author is Tokyo bureau chief of the JoongAng Ilbo.

Nahm Yoon-ho