The Income Gap
February 09 (Thursday) 2006
Recently the income gap issue has once again risen as a topic of discussion in Japan. In the past Japan boasted the lowest post-tax income gap of any industrialized nation. As the recent economic reforms continue, it is said that the income gap is slowly growing, and both social and political concern is rising.
As I touched upon previously in this column, the Internet mogul Horiemon had become the envy of the nation as a young success story who accumulated massive wealth. On the other hand, Atsushi Miura's book Low Class has became a bestseller. Low Class is a book about the rising number of people with low income who hold no hope for the future. The reason this issue has taken on an increasingly political tone has to do with Prime Minister Koizumi's reform policies: pundits have emerged criticizing the reforms as focusing too much on market competition and thus widening the gap between winners and losers.
Japan was once known for having prospered through its postwar high-growth era and for creating a post-tax income structure that was more equal than even that of Sweden. Results of national opinion polls in post-1970s Japan revealed that a vast majority of Japanese viewed themselves as "middle-class," and this phenomenon was hailed as the "mass mainstream of 100 million people." According to a 2005 opinion poll, however, the number of people who consider themselves "lower-class" has risen slightly, and the former structure of consciousness seems to be crumbling. While IT venture millionaires are being born on the one hand, at the other extreme the long drawn-out recession has probably also produced the growing numbers of people forced to work overtime or forced out of jobs altogether.
There are a plethora of indices, such as the Gini coefficient, that are intended to measure income inequalities, and from what can be gathered from such indices it seems that there has been an extremely small increase in the income gap over the past few years. Analyzing the details of these figures reveals that, rather than the difference between rich and poor within the same generation as shown by the opinion polls, there is a yet greater cause for the growing disparity: Japan's aging demographics. Comparing the older generation with that of middle-aged and younger generations shows that there has been a sizeable disparity within the older generation from the beginning. The vast majority of the older generation is retired and receives little income. In contrast to this, the wealth of a small number of people from this generation-managers, asset holders, etc.-has resulted in an intra-generational gap more pronounced than that of the younger generations. As the aging of the demographic structure continues, the Gini coefficient's results reflect the large disparity within the growing older generation. Viewed in this light, the recent increase in the Gini coefficient is miniscule, and moreover the income gap is only slight.
The greatest reason for the shrinking postwar income gap during the high-growth era was the continued growth of income attendant upon the country's economic growth. In other words, the process of economic growth meant that skilled workers were given priority in employment, but even as these skilled workers were absorbed into the labor market they were expected to quickly climb to the next rank, and thus their income levels did not significantly increase. However, as economic growth progressed it became necessary to employ even low-skilled workers, and in the end the entire labor force was depleted, plunging the country into a large-scale labor shortage. In this environment, even the lowest-skilled strata of workers found themselves on the path to rapidly rising wages. As a result, the economy continued to rapidly expand, the wage growth rate rose for even the low-wage rank-and-file, and disparities in income distribution contracted. This phenomenon can be seen in the economic development of any country, and thus was also present in the postwar high-growth era in Japan.
To put it differently, economic growth was responsible for the shrinking disparity in income distribution, and the current strategy for promoting future economic growth in Japan is structural reform. This being the case, the claim that structural reform increases economic disparity is categorically erroneous.
Regardless of Japan's shifting economic structure, it is also true that, as a social phenomenon, there are a growing number of people for whom we must think of new methods of relief. For example, the "tent people" with broken homes, who can't find jobs and are living in tents by the roadside or in train stations or by rivers. Or the young people called NEET (Not in Education, Employment, or Training). Or the "freeter" who deplore being supervised and recuse the burden of social insurance, instead passing their days in a hand-to-mouth existence of casual jobs. These groups of people are becoming an increasingly conspicuous social phenomenon.
These things are not unique to Japan. In Europe and the U.S., too, such phenomena are spreading, a syndrome of affluent society. The vast majority of NEET and "freeters" live off of the income and assets of their parents. Many of the "tent people" have psychologically cut themselves off from society. Though the emergence of these phenomena may be a side effect of an affluent society, once such a person withdraws into this lifestyle it becomes rather difficult to return to regular employment.
These kinds of social illnesses thus demand new policies and methods of care. Looking back on the U.K.'s experiences we may recall that former Prime Minister Margaret Thatcher called for freedom, competition, and personal responsibility, and succeeded in turning around the U.K. economy and giving it the power to grow through radical reforms. Thatcher's successor, Prime Minister Tony Blair, focused on the socially vulnerable people who were neglected by the Thatcher Administration and tested special programs for encouraging their return to the labor market and social rehabilitation.
The Koizumi Administration is pressing robust reforms to push the Japanese economy back onto the road to economic growth. At the same time, however, it seems that a time for careful programs to tread the social ills of our affluent society is also approaching.