Minimum Wage, Earned income Tax Credit, Child Allowance and Basic Income in Japanese Policy Reform Shinji Murakami (Ritsumeikan University Post-Doctral Felllow)

2 Introduction The Government Changed in Japan, 2009 Some of the policies reforms are relevant to BI(basic income) Focusing on MW(minimum wage), EITC(earned income tax credit), CA(child allowance) Discussing Japanese tax reform which is related to the affordability about BI

3 1. Minimum Wage 1.1. Minimum wage in Japan Region and industry wage in Japan The employee is entitled to the higher of the tow MWs Tokyo is 791 yen per hour Okinawa is 629 yen per hour

4 1. Minimum Wage 1.1. Minimum wage in Japan Region and industry wage in Japan The employee is entitled to the higher of the tow MWs Tokyo is 791 yen per hour Okinawa is 629 yen per hour

5 1. Minimum Wage 1.1. Minimum wage in Japan The process determining the regional MWs (1) national MW council : the public interest, employers, employees →establishing “reference's wage” (2) local MW councils →the national council has a significant on the final decisions of local councils.

6 1. Minimum Wage 1.1. Minimum wage in Japan In the negotiations of the national council →The opinions of representative of the public interest are a decisive factor →There are always conflicts between the representatives of employees and employers

7 1. Minimum Wage 1.1. Minimum wage in Japan An industry MW is determined by the deliberation of national council ←The national council accepts the necessity of increasing specific industry MW

8 1. Minimum Wage 1.1. Minimum wage in Japan January 28, 2010 The Ministry of Health, Labour and Welfare The Ministry of Economy, Trade and Industry →Setting up a task force to examine the effects of increasing the MW →Intending the aim of immediate level is 800 yen per a hours

Effects of increasing MW Card and Krueger (1995) and Tachibanaki and Urakawa (2007) (in Japanese) →Advantage in increasing MW →Increasing employment, rising the working poor's income

Effects of increasing MW Some studies(Neumark and Wascher (2008), Kawaguchi and Mori (2009) etc.) →Reducing employment opportunities for less- skilled worker →Tending reducing their earnings

Effects of increasing MW Negative advocate about minimum wage ： Suggesting refundable tax credit or BI Whether increasing MW is compatible with BI in the Japanese social context

Effects of increasing MW A central point: The level of BI or refundable tax credit and the range increasing MW High level of BI →MW may not be necessary Low level of BI →MW could play important roles

Effects of increasing MW Potential Increasing MW in Japan (cf. OECD 2007 date) →Not low rate of Japanese unemployment

Effects of increasing MW The high level of corporate tax in Japan →a lower rate of corporate tax →compensating the increasing minimum wages in Japan

Effects of increasing MW The high level of corporate tax in Japan →a lower rate of corporate tax →compensating the increasing minimum wages in Japan

16 2. Refundable tax credit The earned income tax credit EITC as more modest or mini version of the negative income tax →The Japanese tax commission, 2009 →Some researcher have examined the feasibility of EITC in Japan →EITC is characterized by workfare policy

17 2. Refundable tax credit The earned income tax credit EITC can be interpreted as a variation of BI →EITC is conditioned on work →However, refundable income tax credit is not necessary work Example : Child allowance(CA) started in Japan, June 1, 2010.

18 2. Refundable tax credit Child allowance A refundable tax credit is related to child care support policy The Democratic Party of Japan's the House of Representatives election manifest in 2009 ： An allowance for each child up to the third grade in middle school (15 years old)

19 2. Refundable tax credit Child allowance The Democratic party planed to make the monthly yen allowance a permanent measure CA is without a means test →partial BI →However, the present administration plans to give half the amount, or yen, in fiscal 2010

20 2. Refundable tax credit Child allowance →In the newest plan, the amount of CA is added after 2011 →The added amount of CA is possible for substituting social service (ex: increasing nursery school) →These combination is determined by the localgovernment as administrative localization

21 2. Refundable tax credit Child allowance CA is selected by the category ⇔ The variation of partial BI is a kind of negative income tax which is selected by means-test

22 3. The possibility of realizing partial basic income in Japan Examination about the relation EITC and negative income tax in japan →Applying to Japanese welfare policy

23 3. The possibility of realizing partial basic income in Japan The difference between and the negative income tax and BI →The form of provision (ex-ante / ex- post), means-test

24 3. The possibility of realizing partial basic income in Japan Focusing on the similarity of synthesizing the income tax regime and subsidy policy Relating to the computerization of tax technology and the social security number to capture just individual revenue level

25 3. The possibility of realizing partial basic income in Japan The progressive rate of income tax flattend

26

27

28 3. The possibility of realizing partial basic income in Japan Suggesting a return to more progressive income tax and increasing rate of consumption tax. →not just to raise revenue but to narrow the Japan's income inequality

29 3. The possibility of realizing partial basic income in Japan Suggesting a return to more progressive income tax and increasing rate of consumption tax. →not just to raise revenue but to narrow the Japan's income inequality

30 3. The possibility of realizing partial basic income in Japan →Examining the refundable tax credit as compensating low income earner for increasing rate of consumption →Partial BI

31 4. Conclusion There are difficult problems →The change will link to some variation of BI