Minimum Wage Talks: Who's Looking Out for Small Enterprises?

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The government has decided that in 2025 the minimum wage increase will be the largest on record.

New guidelines for the national average minimum wage have been issued by the Central Minimum Wages Council of the Ministry of Health, Labor and Welfare. They call for an increase from the current ¥1,055 to ¥1,118 JPY ($7.14 to $7.57 USD). Such a boost by 6.0% would be the largest ever for the hourly wage.

Real wages, allowing for price fluctuations, were negative for six consecutive months through June. It is commendable that the minimum wage guidelines, which impact the hourly wages of part-time and casual workers, have been significantly raised to support the daily lives of workers. But steady increases in wage levels will also be needed from next fiscal year onward, if we are to realize a virtuous economic cycle.

Going forward, prefectural councils will make individual decisions on minimum wage levels for their areas based on these guidelines. Remedying regional disparities remains an issue, but if the ¥63 target is met, hourly wages will exceed ¥1,000 ($6.77) in all prefectures for the first time.

*Then-Keidanren chairman Masakazu Tokura (left) and Rengo president Tomoko Yoshino discuss wages in Tokyo on January 22, 2025.*

Supporting Small and Medium-Sized Enterprises

Small and medium-sized enterprises are the most sensitive to the impact of minimum wage hikes. The problem is that they are finding it difficult to make payments.

Small and medium-sized enterprises are already spending a high proportion of their limited profits on labor costs. The "labor share of income," which indicates what percentage of profit is spent on labor costs, is in the 30% range for large companies. However, it is in the 70-80% range for small and medium-sized enterprises.

In urban areas, the hourly wages paid part-time workers are noticeably higher than the minimum wage. The labor shortage in such areas is serious, and if businesses cannot secure personnel, their very survival is at risk.

It is essential that each company make efforts to improve productivity by introducing IT technology so as to generate the capital needed to increase wages.

We would like to see the government support investments that lead to increased productivity. It will also be necessary to further strengthen monitoring of transactions with large companies so that increases in raw material and labor costs for smaller companies can be passed on through transaction prices.

Seeking Steady Increases

Raising the minimum wage directly translates into increased take-home pay. It is something the government can claim as an achievement even without having to incur large fiscal outlays.

Last fall (2024), Prime Minister Shigeru Ishiba brought forward the government's target date for raising the minimum wage to ¥1,500 ($10.15) from the mid-2030s to sometime before the end of this decade. To achieve this ambitious goal, an increase of more than 7% will be necessary every fiscal year from now onwards.

However, it will be up to private companies to actually increase wages. It would be counterproductive if hasty increases in wage levels result in reduced overtime and work shifts, or job insecurity.

We urge the government to keep this in mind while striving to create an environment that will lead to steady increases.