Small Businesses Fear Closure as Minimum Wage Hike Looms in Japan

A Threat to Rural Businesses?

A recent survey by the Japan Chamber of Commerce and Industry (JCCI) reveals that many small businesses, particularly those in rural areas, are apprehensive about the government's plan to raise the minimum wage to 1,500 yen ($10) by the end of the 2020s.

The survey, conducted in January and February 2023, polled 3,958 businesses across the country. It found that 25% of small companies in rural areas believe meeting the government's target is "impossible," and 20% would consider suspending or closing down their businesses if the minimum wage were raised to 1,500 yen.

The Ishiba administration's goal necessitates an average annual increase of 7.3%, more than double the 3.1% increase seen over the past decade. This rapid increase has raised concerns among businesses, with 19.7% of respondents believing the target is impossible to meet and 74.2% finding it "difficult" or "impossible."

The survey highlights a significant disparity between rural and urban businesses. Small rural companies with 20 or fewer employees are particularly vulnerable, with 25.1% deeming the target unachievable, compared to 15.6% of their urban counterparts. Additionally, 20.1% of rural businesses would consider shutting down or suspending operations if the minimum wage were raised by 7.3% annually, compared to 13.6% of urban businesses.

The JCCI expressed concerns that raising the minimum wage beyond the capacity of businesses could have detrimental consequences, leading to closures and undermining the infrastructure supporting rural communities. One retailer surveyed stated, "If we cannot reflect the increased costs on product prices, we may consider going out of business."

The survey also revealed that 67.9% of businesses believe a maximum increase of 3% per year is achievable, while only 1% believe a 7% or 8% increase is feasible.

The impact of the 2022 minimum wage revision, which saw the largest increase ever, was also assessed. While 44.3% of respondents increased wages due to employees earning less than the minimum wage, 76% found the current minimum wage level to be a "great burden" or "somewhat of a burden."

The survey findings highlight the potential challenges associated with the government's ambitious minimum wage target, particularly for small businesses in rural areas. Further analysis and dialogue are needed to ensure that the policy achieves its intended goals without jeopardizing the viability of these businesses and the communities they support.