Photographer: Tomohiro Ohsumi/Bloomberg

Raising Wages in Japan Is Making Part-Timers Work Less

Tax system encourages married women to limit participation
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Over the last 10 years, Japan’s 14 million part-time workers cut their working hours by more than 6 percent. They now work about 4.5 hours a day.

That's a blow to a country that’s struggling with a declining population, and to a government seeking to increase people’s take-home pay and to promote greater workforce participation by women.

Ironically, the government’s push to raise wages may be forcing many people to work less. That’s because more than 75 percent of part-time workers are women, and married part-time workers are eligible for tax, social welfare and pension benefits if their annual salary is under certain limits. When an increase in hourly pay risk pushing people over the threshold, a logical response is to cut work hours.

The most well-known of these benefits is the so-called "1.03 million yen wall" -- where a couple loses tax benefits if the lower-earning spouse’s income exceeds about $9,100 a year. The effect of this can be seen in married women’s income, which clusters around that 1 million yen level, according to a report from Yasuo Shirahase at NLI Research Institute.

In addition, many companies pay family benefits, and the cut-off for most of these is also set at the same level. So if a spouse earns 1.04 million yen in a year, not only do the couple lose thousands of dollars in tax write-offs, they may also lose more in pay.

Full-time workers don’t have the same disincentives to keep their salaries low, and they’ve been increasing the amount they work.

The government will probably propose raising the 1.03 million yen threshold to 1.5 million yen, the Nikkei newspaper reported this week. There was a plan to scrap this entirely, but this was abandoned because of concern that housewives would oppose the measure, the Nikkei reported.

There’s other "walls" as well, with pension and social welfare payments mandatory once a spouses' salary exceeds either 1.06 million yen or 1.3 million yen, depending on company size and other conditions.

Even if the tax-free threshold is lifted, part-timers won't provide much of a boost to the labor supply as they will still have to pay social-welfare costs if their income goes over these levels, according to a report by Deutsche Bank economists Mikihiro Matsuoka and Kentaro Koyama.

It's likely that the 1.06 million yen income level will come to be seen as the new "wall" for female part-time workers, according to NLI's Shirahase, who wrote that the system acts as a barrier to women's workplace participation and is a brake on economic growth.

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