Why Japan’s wages are low

Why Japan's wages are low Japan

During the Tokyo Olympics, foreign media were surprised to find that prices in Japan were low. This is due to low salaries in Japan, and as a result, subordinates are also cheaper. We will explain why this is the case.

Reasons why salaries are not growing

The weak yen policy in Japan has allowed Japanese companies to continue to increase their profits without reforming their corporate structure. This is why salaries have not increased.

Small, medium, and micro enterprises, which account for 70% of GDP are less IT-enabled than in other countries, so Japanese companies have low productivity and are unable to generate high added value. There is also a lot of unnecessary paperwork.

Small, medium, and micro enterprises are small in size, have not been eliminated or merged, and are structurally unable to generate profits. Small and micro enterprises are deprived of pricing power by large enterprises and cannot pay high salaries to their employees because they are bought off.

Both large companies and micro, small, and medium-sized enterprises demand low-skilled labor and have no incentive to raise salaries.

Failure of monetary and fiscal policies

Perhaps these are the arguments that economists and intellectuals have been making. Of course, I do not deny these things, nor do I have the ability to deny them academically. However, as a consultant in the field, I would like to express my feeling in the field that salaries of Japanese people are not rising. Perhaps, these are the things that have been discussed among economists and intellectuals.

Employment stability due to low salaries

It is often said that it is difficult to fire workers in Japan because the company will lose in court if it does so. This half is wrong and the company is responsible for this. Many companies increase salaries as employees age; no one will probably reach their fifties with their salary unchanged from when they were 22 years old. The company increases the employee’s salary as he or she ages, which means that the company considers the employee to have improved his or her abilities. So when a company tries to fire an employee because he or she is incompetent, it looks like a self-contradiction to the court.

The company assumes that as the employee ages, he or she will become more familiar with the workplace and the job as a whole and become more capable of doing the job. As long as that assumption is made, it is inevitable that the system should be designed to increase the employee’s salary with years of experience.

Due to the less fluid state of not being fired or not being fired, the salary level will instead be lowered. Conversely, employees gain stable employment due to the stability and lower salaries.

Foreigners come to work

Many people thought that Japan does not attract talented foreigners due to low salaries, but in fact the number of foreign workers in Japan is increasing every year.

However, most of them are only accepted on a temporary basis as inexpensive labor, such as foreign students and technical apprentices. Let us discuss foreign students and technical interns.

First, there are two main types of foreign students who come to Japan.

Those who are interested in Japanese culture, including manga and anime. 

Thankfully, there are a certain number of foreigners who come to Japan to study because they like Japanese culture and anime. So, what kind of people are those who come to Japan because they could not get into a university in their home country?

The answer is: “I could not enter a university in my home country with my grades, so I came to Japan. That is why they came to Japan.

They even said, “They think I am spoiled in my own country. 

Since they cannot enter universities in their own countries, they have no choice but to enroll in Japan. Then there are the technical intern trainees, many of whom are from rural China or Southeast Asia. However, the number of technical interns from China, where the gap between wages and those in their own country is shrinking, continues to decline, and instead Vietnam has increased to 39% of the total.

However, with a population of over 100 million and an annual economic growth rate of over 6%, Vietnam, like China, will soon no longer have the advantage of choosing Japan.

Whether they are foreign students or self-employed technical apprentices, they are not, for lack of a better term, the international elite. This is like bringing in second-rate foreign players as helpers to increase opportunities for Japanese players in professional baseball.

This is no way to increase competitiveness as a country.

Hong Kong and Singapore are making national efforts to acquire talented foreigners in order to increase their international competitiveness. For example, here in Hong Kong, under the title of “Excellent Talent Plan,” they have announced to the world which fields of talent they want (asset management, fintech, science and technology, etc.), and they offer various preferential measures, such as allowing those in those fields to reside in Hong Kong before they find employment. China is also in the process of tightening visa requirements and selecting only the best foreigners.

Japan’s international competitiveness is declining, and yet it is not actively seeking out talented people from overseas, but only cheap labor as a temporary fix. If this trend continues, Japan will soon face a future in which not only competitive human resources but also all other foreigners will abandon it.