3 days ago
'Zombie company' apocalypse might be the point of Japan's minimum wage push
Efforts to push the minimum wage up by about 40% in just a few years could wreck a lot of smaller companies in Japan. And that just may be the point of the exercise.
'I think the significance of raising minimum wages faster than organic growth is to drive companies with low-productivity that are unable to raise wages out of business,' Shunsuke Kobayashi, chief economist at Mizuho Securities.
Prime Minister Shigeru Ishiba announced last month that the government will work to increase the average minimum hourly wage to ¥1,500 ($10.50) by the end of the decade. That's about a 7% increase every year, a pace widely seen as overly ambitious.
'Realistically speaking, the prime minister's target will be quite difficult,' said Hisashi Yamada, a professor at Hosei Business School of Innovation Management.
To a certain extent, the campaign may be unnecessary, Kobayashi said, since wages are expected to increase at a solid pace even without government intervention as companies need to attract workers amid serious labor shortages.
Analysts say that rapid minimum-wage increases might accelerate the restructuring of small and midsize companies in Japan, many of which are referred to as "zombie companies." These companies cannot cover interest on debt with their profits.
The number of zombie companies in Japan were estimated at 228,000 in fiscal 2023, according to Teikoku Databank, one of the highest levels in a decade.
Because it would draw immense criticism, Ishiba will not openly say the government wants to slash the number of zombie companies, but his Cabinet probably has this goal in mind, Kobayashi said.
Yamada echoed the point, saying, 'I believe there is such an intention.'
He said a policy that reduces the number of zombie companies may be the right thing to do, but the effort could drive even relatively healthy companies out of business.
Some small and medium-size enterprises are actually doing quite well, but they're struggling because their business clients won't agree to price increases as inflation pushes up operating costs.
'I think the government can pursue various approaches to foster wage growth, but pushing too aggressively could jeopardize public confidence in the government,' Yamada said.
Ishiba's Cabinet is planning to support smaller companies in their efforts to increase productivity over the next five years and offer subsidies to prefectures that are keen to raise their minimum wages.
According to a survey in March by the Japan Chamber of Commerce and Industry, a lobby group for smaller enterprises, 19.7% of small businesses said it would be 'impossible' to keep up with Ishiba's minimum wage target, while 54.5% said it would be 'difficult.'
While the survey indicates that many small and medium-size companies are worried about keeping up with Ishiba's target, some business leaders have indicated they are on board.
Takeshi Niinami, chairman of the Japan Association of Corporate Executives, is an advocate of accelerating minimum wage increases. He has said managers unable to keep up with the pace of minimum-wage increases 'are unfit for their positions' and their companies 'should exit.'
The association he runs wants the ¥1,500 minimum to be achieved in three years.
Under the administration of former Prime Minister Fumio Kishida, the government set a mid-2030s deadline to achieve the ¥1,500 goal, but Ishiba has brought this forward.
Japan's current average minimum wage is ¥1,055 an hour. It was increased by 5.1% last year. Prior to the COVID-19 pandemic, the increase was 3% annually for several years, which was considered high at the time.
The government is expected to compile its annual economic and fiscal management guideline — the honebuto no hōshin ― this month, and Ishiba's minimum wage goal will be a focus of discussion.
Komeito, the coalition partner of Ishiba's Liberal Democratic Party, has requested the prime minister to include the minimum-wage target in the honebuto.
