Wages went up, and working hours went down. In Japan, minimum wage increases are paradoxically reducing the supply of labor.
Japan's average minimum wage this year was set at 1,177 yen (about 10,178 won) an hour, up 56 yen, or 5.0%, from a year earlier, according to the Ministry of Health, Labour and Welfare on the 30th. It is the second-largest increase on record. Tokyo has the highest rate at 1,280 yen, followed by Kanagawa at 1,279 yen and Osaka at 1,231 yen.
The Japanese government aims to reach 1,500 yen an hour by the early 2030s. The current level is about 150 won below South Korea's minimum wage this year of 10,320 won, a gap reflecting the weak yen.
The problem is that part-time workers cut their hours as wages rise. Japan has what is known as an "income wall," a threshold above which taxes and social insurance premiums climb sharply, leaving workers with far smaller gains in take-home pay. When hourly wages rise, workers must cut their hours to keep their income the same.
Based on the government's Employment Structure Survey, the Itochu Research Institute estimates that 4.08 million short-hour workers cut their hours between April and June this year because of the wall, or about 20% of all non-regular workers.
The 1.3 Million Yen Wall Stays Despite Government Changes
The government has moved to revise the system, but the core wall remains. From October, the "1.06 million yen wall" will be scrapped and the income tax threshold will rise to 1.78 million yen a year. But the "1.3 million yen wall," at which workers lose dependent status under a spouse's social insurance, stays in place. So does the "working hours wall," under which anyone working 20 hours or more a week must enroll in social insurance.
Because higher hourly wages mean workers hit these walls faster, the number of people deliberately cutting their hours is bound to grow.
The results show up in the numbers. The number of short-hour workers rose 5% from 2019 to 16.14 million, but average actual monthly hours per worker fell 7% over the same period to 79.1 hours. Total labor supply declined 2%. That is equivalent to 348,000 short-hour workers disappearing from the labor market.
The impact has been concentrated in retail, restaurants and food service. HR Solutions said 7.7% of non-regular job postings from January to September this year were framed around the dependent system. In the supermarket sector, that share was 22.7%, up 4.4 percentage points from a year earlier. Some companies now list "under 20 hours a week" as a hiring condition.
Individuals also lose out over the long run. Keeping income low to avoid enrolling in social insurance means missing the chance to join the employees' pension scheme, which pays more than the national pension, leaving less retirement income. In Japan, where low birth rates and population aging have created chronic labor shortages, the tax system continues to work against the supply of labor.
South Korea is not immune. With the minimum wage rising steadily, some observers say the country could see a similar pattern of workers cutting hours if dependent deduction thresholds and social insurance enrollment rules interact in the same way.
