Real wages have remained flat in Japan for years. Japan’s average minimum wage barely breaks 1,000 yen and hasn’t kept pace with inflation. Yet there are two companies – Costco and IKEA – that manage to break the mold. That has many in Japan asking: If these companies can pay well and still make a profit, then why can’t Japanese firms?
You loaded sixteen tons an’ whaddya get? Around 1,055 yen
The average hourly (i.e., non-salaried) wage in Japan is currently around 1,055 yen. For those of you keeping score at home, that’s around USD $7 – or $0.25 below the United States minimum wage.
This is way behind the average wage paid in most other G7 countries. Japan ranks sixth out of seventh in the G7; in many years recently, it’s come in dead last.
It’s even worse when you look at real wages – i.e., average buying power adjusted for inflation. A chart from Japan’s Ministry of Health, Labor and Welfare drives this home, showing how Japan’s real wages have remained flat compared to other G7 countries since 1991. Only Italy has managed to do worse, with real wages markedly declining since 2019.
Can Japanese companies pay a 1500 an hour minimum wage?
In recent years, a combination of rising prices and a weak yen have made things even worse for anyone earning money in the local currency. As a result, more citizens are demanding that Japan lift the minimum wage to 1500 yen, or USD $9.95 an hour. Many political parties have made raising the minimum wage a part of their platforms in next week’s Diet elections.
However, many small- to medium-sized Japanese companies are complaining they can’t make a 1500 yen minimum wage work. With the price of raw materials like steel going up 2x and gas costs increasing by 4x, some say they’re already teetering on the brink of bankruptcy.
How Costco and IKEA are dusting local enterprises
Amidst this controversy, two companies are managing to both pay their workers and make a decent profit simultaneously.
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Costco’s starting wage in Japan is already 1500 yen an hour (USD $9.95). It pays this evenly across the company, even if the average wage is lower in a given area. That’s had local businesses huffing and puffing that they can’t compete for talent with a multinational company.
Another company beating the odds is IKEA. It starts employees at 1300 yen ($8.63) – and pays more in many cases. IKEA is also drawing the ire of local conglomerates, such as Aeon Supermarkets, which say they’re losing talent to the Sweden-based retailer.
How Costco and IKEA are beating local companies
That raises the question: How are Costco and IKEA doing it?
Yes, both companies are large multinational corporations. But they’re not going to remain in the Japanese market if they’re not turning a profit.
An article for ITMedia highlights a couple key differences between how Costco and IKEA operate versus how Japanese companies operate.
One is that, while Japanese companies frequently use part-time or contract workers to save on costs, Costco and IKEA generally treat full-time and part-time workers the same. Another, as noted above, is that Costco and IKEA pay equally regardless of area, while Japanese companies will lower their wages in a given prefecture if the average wage there is lower.
Why do Costco and IKEA do this? The answer’s pretty obvious: well-paid employees are more productive. Both Costco and IKEA have learned that decent pay leads to fewer absences and better performance. Costco also automatically raises hourly pay for every 1,000 hours worked, providing employees with additional motivation to work harder and advance their careers.
Are Japanese firms chasing short-term profits?
ITMedia notes that Costco can likely afford to pay more because…well, it makes more. The appeal of its products and business enables it to make an average 180,000 yen per square meter of store space per year compared to 130,000 yen for a regular supermarket.
By contrast, IKEA is in stiff competition against Nitori, Japan’s largest local home furnishing chain. IKEA’s only pulling a 1.8% profit compared to Nitori’s 10%. As a result, it hasn’t raised pay as quickly as Costco. In other words, they’re sacrificing a little profit – in the form of employee pay – to attract talent and compete harder.
At the end of his article for ITMedia, technology and real estate writer Yamaguchi Shin says he often hears Japanese companies complain they’re short-handed and can’t attract talent. “But aren’t they’re actually short-handed because they pay so low?” Yamaguchi wonders.
Many commenters on Yahoo! News Japan seem to agree. As one put it, “Costco and IKEA could pay the minimum and boost their profits. But instead, they share a part of their profits with employees, which enables them to attract people who are stable, trustworthy, and motivated to work….Currently, Japanese companies are just chasing short-term profits.”
Time will tell if Japanese firms can learn this lesson. If they can’t, it’ll likely spell bad news for them – and good news for their eager overseas competitors.
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Sources
ใณในใใณใจใคใฑใขใฏใชใๆ็ตฆใ้ซใใฎใ๏ผใๆฅๆฌไผๆฅญใฎใไบบๆไธ่ถณใใฏใใ ใฎ่จใ่จณใซ้ใใชใ. ITMedia
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ๆฅๆฌใฎๆไฝ่ณ้ใไธ็ใซ่ฆๅฃใใๆญฃ็คพๅก่ณ้ใฎ45%ใฉใพใ. Nikkei Shimbun
ใณใฉใ ๏ผ๏ผ๏ผ๏ผโ ๅณใ๏ผง๏ผๅๅฝใฎ่ณ้๏ผๅ็ฎใปๅฎ่ณช๏ผใฎๆจ็งป. Ministry of Health, Labour and Welfare