Comment on “Inequality in Japan”

Abstract

Ohtake (2008) has three important conclusions. First, income inequality in Japan has increased. Second, the income gap has been greater in the USA than in Japan. Third, in contrast to Japanese society, Americans are comparatively more tolerant of their widening income gap caused by academic background and inborn talent, and also believe that their society has given them an equal opportunity to become rich. Income inequalities are rising in many advanced capitalist democracies, including Japan. This has sparked debate on their causes and on the capacity of welfare states and social policies to counter market inequities. Postwar Japan has been known to have a fairly egalitarian income distribution, underpinned by lifetime employment, a seniority-based wage system, and corporate welfare. The role of the state is more circumscribed than in many Western capitalist economies, and this has limited the growth of government spending and the tax burden. However, income inequality has also been rising in Japan. According to the Organisation for Economic Cooperation and Development (OECD, 2006, chapter 4), the Gini and the ratio between the top and bottom of disposable income have risen above the OECD average. The main reasons for rising income inequality in Japan are identified as population aging and the growing phenomenon of labor market dualism (“freeters” in Ohtake, 2008). A significant increase in Japanese inequality during the 1980s was due to the aging population. How the aging population affects income distribution needs a clearer explanation in Ohtake (2008). The OECD (2006) identified three channels. First, the rising percentage of the elderly population raised the overall level of inequality because of larger between-group income differences. Second, inequality among those over age 65 is higher than for those below age 65. Third, an increasing proportion of the elderly are living on their own, thus increasing the number of households with older persons reporting low incomes. Social expenditures in Japan are focused largely on the elderly, mainly insurance systems for pensions, health care, and long-term nursing care. With Japan aging rapidly, Ohtake could explore the various policy options facing the Japanese government. Ohtake notes that income inequality especially increased within the age groups below age 39, due to the rapid growth of “freeters” (nonregular workers). The OECD (2006) noted that the proportion of nonregular workers has risen from 19% of employees in 1994 to 29% in 2004. These include young people on temporary contracts, married women working part-time, and older persons who are rehired on fixed-term contracts. One quarter of employees in the 20–24 age group and over half of women employees are nonregular workers, and they are most prevalent in the service sector and in smaller firms. These nonregular workers are paid lower wages. They rose rapidly in the 1990s following an easing of government restrictions on temporary employment. Many of these workers are not included in enterprise-based social insurance schemes. In a country where lifelong employment acted as a social safety net covering everything from health care, housing loans to retirement funds, the social impact has been devastating. Although introduced during the recession years, labor market dualism could become entrenched even with economic recovery. Ohtake notes that since nonregular workers are likely to earn much less over the course of their lifetimes, they will contribute to a widening income gap in the future. Ohtake could explore possible solutions to rising inequality caused by this labor market dualism. There is a growing debate in advanced capitalist democracies on what factors shape societal attitudes and values toward support for government redistributive policies, and how these attitudes vary across countries according to level of economic development or income inequality. For example, do countries with higher levels of income inequality also have higher support for redistribution policies? Are those with higher education, higher incomes, or greater job security less likely to support redistribution policies? Are those more vulnerable groups and most likely to benefit from welfare programs more likely to support redistribution policies? Ohtake highlights interesting differences between Japan and the USA in levels of awareness about the income gap and attitudes toward the different determinants of income inequality. Although the rise in income inequality is less in Japan than in the USA, there appears to be a greater awareness and concern over the phenomenon in Japan, and a greater acceptance of income redistribution through taxation and social security policy. This reflects the fact that an equal income distribution is far more strongly supported in Japan than in any other OECD country. Also, there has been a growing unease caused by the “freeters” phenomenon and the growing adoption of a performance-based wage system. Hence, the Japanese appear to prefer income inequality arising from choice/effort and are averse to income inequality arising from inborn talent, academic background, and luck. The Japanese traditional wage system was based mainly on “evaluating the length of an employee's overtime work and his effort.”“Academic background” in the Japanese perception survey is taken to mean “the old school tie network” rather than academic qualifications and considered an undesirable income determinant. What is not highlighted in Ohtake's paper are two possible departures from the Japanese preference for traditional “choice/effort.” They refer to the growing numbers of young Japanese university graduates and women who are employed by foreign firms in Japan in recent years and who have benefited from the departure from the traditional wage system.