What’s going on here?

Costco Wholesale’s new warehouse in Meiwa, Japan, opened in April 2023, offering wages well above the local and Tokyo minimums, creating ripples in the local economy.

What does this mean?

Costco has set its starting wage at 1,500 yen per hour in Japan, significantly higher than the 1,113 yen minimum in Tokyo and 60% above Gunma’s minimum wage. This move has pushed local businesses, like Yamada-udon, to increase their wages—up by a third to 1,300 yen for the first three months and then to 1,050 yen from 970 yen. Prime Minister Fumio Kishida and the Bank of Japan (BoJ) have emphasized the importance of sustainable wage increases to restore normal monetary policy and stabilize the economy. However, despite substantial wage hikes in 2023 and 2024, real wages in Japan have dropped for 25 months consecutively, hindering

consumer

spending. It’s a notable contrast to the US and France, where average annual wages grew by 50% and nearly 30%, respectively, from 1995 to 2021. Costco’s impact is clear, with over 2,000 applications for 300 positions at its Meiwa store, showcasing the allure of higher wages.

Why should I care?

For markets: Costco sets the bar higher.

Costco’s competitive wages could ignite a virtuous cycle of higher wages leading to increased consumption and stable, demand-driven

inflation

. This approach might just tackle Japan’s economic woes, encouraging other companies to follow suit. IKEA’s move to set a nationwide minimum hourly wage of 1,300 yen further intensifies the wage competition. Economists at Indeed Hiring Lab suggest these higher wages from foreign firms could spur wage hikes across Japan, potentially revitalizing local economies.

The bigger picture: Workers’ earnings and economic revival.

Costco’s expansion to over 60 stores in Japan by 2030, particularly in remote regions like Shiga and Okinawa, is likely to boost local economies significantly. Meiwa has seen hourly wages surge by up to 300 yen since Costco’s opening, and the influx of daily visitors has amplified economic activity. However, this wage competition poses challenges for small and medium-sized businesses struggling to keep up. Some smaller businesses find the new wage environment tough to afford, reflecting concerns highlighted by the Gunma Labour Bureau. Ultimately, Costco’s higher wages are enhancing employees’ personal lives, allowing for better quality purchases and increased savings, setting a new standard in Japan’s employment landscape.