The rising sun leaves some Japanese in the shade
Jun 15th 2006 TOKYOFrom The Economist print edition
An emotional debate about those untouched by the economic recovery
IN A country that very nearly defines itself by its egalitarianism, an anguished debate in parliament, in newspaper columns and on television shows has gathered pace this year about Japan’s widening gap between the haves and have-nots. Arch-conservatives and left-wingers alike blame the income gap not just on globalisation clobbering the unskilled, but on the structural reforms and deregulation championed by the prime minister, Junichiro Koizumi, and his Liberal Democratic Party (LDP). Over the past few years, the critics charge, companies that once protected their workers have been able more easily to sack them, or redesignate them as “non-regular” staff, who come cheaper. Young adults, even graduates, have suffered in particular, many unable to get full-time work or any work at all.
And as the poor have got poorer, so the rich have multiplied. This year, two entrepreneurs now under arrest for market manipulation and insider dealing—Takafumi Horie, the brash young former boss of livedoor, an acquisitive internet company, and Yoshiaki Murakami, an ex-bureaucrat who turned shareholder activist and corporate raider—have become emblematic of Japan’s growing disparities. Commentators seem less offended by their alleged flouting of securities laws than by their drive for profits.
Motonari Otsuru, the senior Tokyo prosecutor investigating them, is explicit. In a speech before the arrests he said: “We cannot let this become a society where people who sweat from their labour, or who want to work but can’t because of restructuring, can be taken advantage of.” The admission on June 13th by the central-bank governor, Toshihiko Fukui, that he was an early investor in the Murakami Fund (see article) appears to be further proof of the conspiracy of the rich against the poor.
With the income gap a big topic in the race to succeed Mr Koizumi as prime minister this September, it is worth taking a closer look. Statistical problems always guarantee that the income gap, in any country, is contested ground. Even so, no matter which data are used, the trend looks the same: income inequality in Japan has risen since the early 1980s. The first chart below, using one trusted series, shows the Gini coefficient, a measure of income inequality where 0 represents equal pay for all households while 1 would represent perfect inequality—a single household taking all income. Work by Toshiaki Tachibanaki, an economics professor at Kyoto University, puts Japan behind only the United States, Britain and Italy in income inequality among the big rich economies. It once boasted Scandinavian levels of equality.
Yet a closer look at the reasons behind the rise in inequality reassures somewhat. Fumio Ohtake, at Osaka University, notes that income distribution by age of household head has remained constant. In other words, the rise in the Gini coefficient can mostly be explained as a statistical outcome of Japan’s rapidly ageing population. Older people tend to have the widest income disparity, since while some people retire to live on modest pensions, more senior managers get hefty pay rises in the last years of their working life, with pensions afterwards to match. An ageing population therefore scores higher on overall measures of inequality.
This effect counts for much more than any income gap among the young. All the same, that gap has grown among those under 30, according to a 2004 survey. This is probably due to an increase in the number of unemployed and those in part-time work. Between 1990 and 2005, the number of “non-regular” workers—ie, those on lower pay with neither full-time contracts nor benefits—rose from less than one-fifth to nearly one-third of the workforce, hitting the young (and working women) disproportionately.
Labour flexibility did much to help Japanese companies escape from piles of debt over the past decade, and partly as a consequence they are now making record profits. They are, indeed, busy hiring workers again, and more full-time ones than part-time. Furthermore, the recovery is spreading to the regions: in April the number of jobless fell by 260,000 from a year earlier, the fifth monthly fall in a row. Graduating students are finding work more easily than in previous years. Recruit, an employment agency, said in a recent survey that in the latest recruiting season, over 60% of students turned down their first job offer. Among the young, higher employment should start to reduce inequality.
The inequality debate will continue, however. Even though Mr Koizumi’s most conspicuous reform—privatisation of the postal savings bank—has yet to lead to a single sacking, Japanese often equate deregulation with inequality. Take the taxi industry, for example, which has been opened up. Critics say there has been a fall in pay among drivers since deregulation, yet Mr Ohtake points out that the number of drivers has leapt, thereby reducing inequality. The rise in “non-regular” workers in Japan may in fact have narrowed the income gap, because the alternative was probably unemployment. But people do not see it that way.
Even so, hard choices lie ahead. The growing inequality among the old will be passed on when their children inherit their wealth. If Japan really does care about equality, then a debate about redistribution is on the cards.
More pressing is what to do about the unskilled young who will struggle to find full-time work despite the recovery. Their plight is magnified in Japan by an employment system that still emphasises recruitment directly after school or college: by 30, a part-time worker will find it increasingly hard ever to find a full-time job. Better policy is needed, says Mr Tachibanaki, if a Japanese underclass of the underprivileged, however tiny in comparison to America or Britain, is not to emerge.