Japan’s SME Workers: The Mirage of Wage Growth

Headlines celebrating record-high wage growth in Japan mask a different reality for workers employed by small and medium-sized enterprises (SMEs). A survey by the Japan Chamber of Commerce and Industry (JCCI) found that the average wage increase rate for full-time employees in SMEs was just 3.62% in 2024, with an average monthly wage increase of 9,662 yen. For companies with 20 or fewer employees, which constitute the bulk of SMEs in Japan, the wage increase rate was even lower at 3.34%, with an average monthly wage increase of just 8,801 yen (read full report). These figures obscure disparities in wage growth across different segments of the workforce and the impact of the minimum wage increase on part-time and temporary workers.

Despite pressure on SMEs to raise wages in Japan’s tight labour market, real wages continue to decline, falling 2.5% in March 2023 and 0.7% in April compared to the previous year, marking twenty-five months of consecutive decline. The prevalence of “defensive wage increases” among SMEs, which the JCCI survey found to be 59.1%, suggests that even when businesses raise wages, they are often barely keeping pace with inflation, leaving workers no better off in real terms.

The impact of the 4.47% increase in Japan’s national weighted-average minimum wage on reported wage growth for part-time and temporary workers cannot be overlooked. In industries such as retail, restaurants, and services, where wages often hover close to the minimum wage, workers are particularly likely to have seen their wage growth largely determined by the mandated minimum wage hike rather than discretionary raises from employers. Data from Statista shows that as of April 2022, the average hourly wage for restaurant staff in the Greater Tokyo Area was 1,162 yen, with similar wages across various job categories in the industry and less than a 50 yen difference between the highest and lowest paid jobs. The close proximity of wages to the minimum wage in this sector makes it difficult to determine whether wage increases for part-time and temporary workers are a direct result of the minimum wage hike or other factors, as employers may also seek to maintain wages slightly above the legal minimum. In fact, the average wage increase rate for part-time and temporary workers in SMEs (3.43%) being lower than the minimum wage hike (4.47%) strongly suggests that many of these workers, particularly those already earning close to the minimum wage, received only the bare minimum pay increase required to comply with the new legal standard, rather than a more substantial raise reflecting their individual performance or the generosity of their employers.

Furthermore, the JCCI survey’s methodology, which compares wages between April 2023 and April 2024, fails to adequately isolate the impact of the minimum wage increase on the reported figures. The high prevalence of “defensive wage increases” among SMEs strongly suggests that a significant portion of the reported wage growth is not tied to productivity gains or improved business performance. A more granular analysis that separates wage growth before and after the minimum wage hike would be necessary to accurately assess the true impact of this policy change on SME workers’ earnings.

In addition to the limitations of the JCCI survey’s methodology, the lack of granular data on wage distributions and the proportion of workers earning close to the minimum wage in different industries further complicates efforts to assess the true impact of wage increases on the lives of SME workers. Without detailed information on how wage increases are distributed across the workforce, it is impossible to determine whether the reported figures represent broad-based gains for all workers or if they are skewed by larger increases for a small subset of employees.

In conclusion, the headline wage growth figures for SMEs obscure the harsh economic realities faced by a significant portion of the workforce. Policymakers and the public must look beyond surface-level numbers and examine the complex factors shaping wage growth in the SME sector. Only by taking a comprehensive, data-driven approach to addressing the needs of SME workers can Japan hope to transform the mirage of wage growth into a reality of broad-based economic prosperity for all segments of the workforce.

Resources

Nippon 15 August 2023
https://www.nippon.com/en/japan-data/h01751/
Average Minimum Wage in Japan Set to Exceed ¥1,000 for First Time

Nikkei Asia 19 March 2024
https://asia.nikkei.com/Spotlight/Work/Japan-minimum-wage-falls-short-by-international-standards
Japan minimum wage falls short by international standards

Japan Political and Economic News 11 April 2024
https://www.jpen.online/shunto-wage-hikes
Shunto Wage Hikes: Unpacking the False Headlines

Kyodo News 8 June 2024
https://english.kyodonews.net/news/2024/06/a106d35888d2-japan-small-mid-sized-firms-offer-362-pay-hike-below-major-firms.html
Japan small, mid-sized firms offer 3.62% pay hike, below major firms

求人ボックス 7 June 2024
https://xn--pckua2a7gp15o89zb.com/journal/news/528/
雇用の7割を支える中小企業の賃上げの波。中小企業の賃上げ率は正社員で平均3.62％。「その他サービス業」「小売業」が4％台と高水準／日本商工会議所、東京商工会議所による調査

NHK 5 June 2024
https://www3.nhk.or.jp/news/html/20240605/k10014471681000.html
中小企業の賃上げ率 正社員の平均で3.62％に 日商が初の調査

Nikkei 5 June 2024
https://www.nikkei.com/article/DGXZQOUA0535X0V00C24A6000000/
中小賃上げ率3.62%、大企業となお格差日商調査賃上げ2024

日本商工会議所 5 June 2024
https://www.jcci.or.jp/news/research/2024/0605110001.html
「中小企業の賃金改定に関する調査」の集計結果について～中小企業の賃上げ率は正社員で3.62％、パート・アルバイト等で3.43％～

日本商工会議所 (Pdf full report)
https://www.jcci.or.jp/file/sangyo2/202406/20240605_survey_release.pdf
「中小企業の賃金改定に関する調査」調査結果

Japan Times 30 January 2024
https://www.japantimes.co.jp/business/2024/01/30/economy/japan-tight-job-market/#:~:text=Japan's%20labour%20market%20showed%20further,annual%20wage%20negotiations%20with%20unions.
Japan job market remains tight, keeping hopes for wage hikes

Reuters 8 May 2024
https://www.reuters.com/world/japan/japan-real-wages-fall-march-marking-2-years-decline-2024-05-08/
Japan real wages fall in March, marking 2 years of decline

Statista
https://www.statista.com/statistics/1232Japan’s SME Workers:The Mirage of Wage Growth hourly-wage-of-restaurant-staff-by-type-of-work/
Average hourly wage of restaurant employees working in the Greater Tokyo Area in Japan as of April 2023, by type of work