TL;DR intro
- Costco's High Wages:Costco's high wages in Japan have triggered significant pay hikes in local businesses, particularly in rural towns.
- Economic Impact:While the broader economic impact is still uncertain, Costco's wage policies could spur a cycle of higher wages and increased consumption.
- Expansion Plans:Costco aims to nearly double its store count in Japan by 2030, potentially amplifying its influence on local economies.
When Costco Wholesale opened its warehouse in Meiwa, a rural Japanese town near Tokyo, it offered hundreds of jobs at eye-popping wages. This move prompted nearby businesses, including a local noodle shop chain, Yamada-udon, to increase their hourly wages significantly to compete. The impact of Costco's wages in Japan could provide a pathway to improving low pay and boosting the economy.
Impact on Local Businesses
Yamada-udon, which sells 390-yen ($2.48) bowls of noodles, faced a tough decision when Costco set its starting hourly wage at 1,500 yen. To attract job-seekers, Yamada-udon decided to renovate its store in Meiwa and offer an initial hourly wage of 1,300 yen, up from the previous 970 yen. Marketing director Takehiro Ehashi explained the challenge: "For us, even a one- or two-yen rise in raw materials costs is tough, so to increase hourly pay by even 10 yen is extremely challenging as we need to generate far more sales."
Economic Ripple Effect
Costco's wage policy has had a noticeable impact on the local economy. The introduction of higher wages by Costco has forced other businesses to follow suit, potentially creating a virtuous cycle of higher wages, increased consumption, and stable demand-driven inflation. Prime Minister Fumio Kishida has identified a sustainable rise in wages as a key goal, while the Bank of Japan views it as crucial for normalizing monetary policy. Despite the significant wage hikes, real wages in Japan—adjusted for inflation—have continued to fall for 25 consecutive months.
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Costco's Expansion Plans
Costco's influence in Japan is set to grow as the U.S. big-box retailer plans to nearly double the number of its stores in the country by 2030, focusing on remote regions like Shiga and Okinawa prefectures. Kaoru Yamamoto, manager of Costco's Gunma Meiwa warehouse, emphasized the positive impact on the local economy: "If we offer higher wages, our staff can earn and spend more. By doing so, we feel we can make a big contribution by creating a favourable cycle in the local economy."
Broader Implications for the Economy
Economists and analysts are closely watching the ripple effects of Costco's wage policies. Yusuke Aoki, an economist at Indeed Hiring Lab, noted that moves by big foreign firms like Costco and IKEA— which has also set a nationwide minimum hourly wage of 1,300 yen in Japan—could trigger wage hikes in local communities, potentially spreading to the broader economy. Meiwa mayor Motosuke Tomizuka observed that the local hourly wage has increased by up to 300 yen since Costco's arrival, and the town of 11,000 residents now sees about as many daily visitors thanks to Costco's popularity.
Challenges for Small and Medium-sized Enterprises (SMEs)
While the higher wages introduced by Costco have had positive effects, they also pose challenges for smaller businesses. Hisanori Amada, an economist at the Gunma Labour Bureau, pointed out that small and medium-sized businesses are struggling to compete with the wage levels offered by large corporations. "The big chains may have the strength to raise wages, but small and medium-sized businesses are still in a difficult position," he said.
Despite these challenges, some local businesses have seen benefits. Yamada-udon reported a 40-50% jump in revenues, partly due to the influx of shoppers drawn by Costco. However, not all business owners are enthusiastic about Costco's arrival, with some criticizing the increased difficulty in hiring staff.
Future Prospects
Costco's expansion plans and wage policies could have significant long-term effects on Japan's economy. By nearly doubling its store count in Japan by 2030, Costco aims to bring its high-wage model to more regions, potentially fostering a more robust economic environment with higher wages and increased spending power among workers.
