Japan Press Weekly

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2017 March 1 - 7 [LABOR]

Gov’t support for SMEs is best way to achieve minimum wage increase

Financial support for small- and medium-sized enterprises (SMEs) is essential in order to increase minimum wages. Akahata on March 4 carried an article showing what kind of measures the government should implement.

As 70% of the total workforce work for SMEs in Japan, an increase in their salaries through higher minimum wages will bring about favorable effects on people’s overall livelihoods and the Japanese economy as a whole. Therefore, the government needs to provide support for smaller companies as their financial bases are normally less robust compared to large corporations.

Developed countries in Europe and America have raised their minimum wages by implementing a wide range of policies to help SMEs.

The U.S. government, for example, raised minimum wages by 41% in 2009 from the rate in 2007, which benefitted 5.4 million workers. During the same period of time, the Obama administration at that time also provided a tax reduction of 880 billion yen in total for SMEs.

In France, the nation’s lowest pay rate increased by 11.4% in 2005 from the rate in 2003. During the three years, the French government carried out a 2.3 trillion yen cut in SMEs’ contributions to social insurance fees.

In contrast, the amount of financial support that the Japanese government provided to smaller businesses in 2011 through 2014 in relation to an increase in minimum wages stood at only 14.9 billion yen.

The Abe government in 2013 introduced a preferential tax measure where companies can receive tax reductions for part of the costs associated with pay raises. However, such a measure will not benefit most SMEs as they are often troubled by deficits and, because of this, they are exempt from paying corporate taxes in the first place.

Under the preferential tax program, 567.2 billion yen in tax breaks was awarded to businesses of all sizes in 2013-15. Of the 567.2 billion yen, 197.2 billion yen or one-third went to smaller companies (defined as a business with a capital of 100 million yen or less). However, the SMEs that enjoyed the tax cuts accounted for only 3% in FY2014.

Like the U.S. and France, the Japanese government should also consider introducing various measures such as cuts in social insurance contributions for all SMEs including those in the red.