Small, low-productivity firms hold back wage-driven growth in Japan
Explore how small firms in Japan impact wage growth and productivity, facing challenges in a changing economic landscape.
Small, low-productivity firms in Japan are crucial to the sustainability of wage-driven growth, as they account for 67% of employment. However, their ability to keep pace with wage increases from larger firms is limited, posing challenges for overall economic progress.
In 2025, small firms raised wages by 4.65%, compared to an average of 5.25%, with many doing so reluctantly due to rising minimum wage pressures. The disparity in wage increases among small firms is significant, with 30% raising wages by 5% or more, while 20% did not increase wages at all.
The report highlights that small firms with lower productivity employ a disproportionate number of workers, which hampers aggregate productivity growth. Additionally, the ongoing labour shortages and slow digital transformation hinder these firms from optimising their operations, further complicating the wage growth landscape.
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