Intergenerational Differences in Income: An Analysis of Japan

Abstract

The economic and demographic changes that have occurred over the past 25 years in Japan were analyzed and their effects on intergenerational differences in income were assessed. The term generation is defined here by focusing on a cohort i.e. all members of a population born in year b. The members of this cohort have direct or lineal family relationships with members of 2 other generations: the older generation which consists of all living parents of cohort members and the younger generation composed of all living offspring of cohort members. The example used to model intergenerational differences in income is one of steady economic and population growth but most countries have experienced significant demographic and economic change. The case of Japan provides an excellent example. Its economic recovery and rapid growth since World War 2 are well known; the real gross national expenditure more than quadrupled over the 1955-70 period. The principal purpose of the analysis is to obtain estimates of the average and total income of offspring of each 5-year cohort. Detailed tables were constructed for Japan for every 5 years from 1955-2025 so that the earnings of each cohort and the earnings of offspring of each cohort could be traced through time. Cohort members 50-54 in 1955 could expect that the income of each of their offspring would be more than 3 times their own. Intergenerational differences declined substantially between 1955-75 given the decline in generation length and the decline in the average growth rate of income. After 1975 income of offspring is only about twice that of cohort members. In calculating the combined lifetime income of all offspring relative to the lifetime income of cohort members the marked effect of the decline in childbearing is obvious. The surviving offspring per cohort member will have declined from 2.17 for the cohort born from 1900-04 to 1.01 for the 1940-44 cohort. As a consequence relative income of all offspring combined will decline from 7.05 for the 1900-04 cohort to 2.30 for the members of the 1940-44 cohort. The total real income of all offspring combined does not decline but grows at a much slower rate than the income of cohort members.