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In-depth Japan’s Welfare Policies at the Crossroads
Wrestling with Poverty and Income Inequality

Komamura Kōhei [Profile]


Japan is not the only industrialized nation that has seen an increase in income inequality in the past few decades, but it is one of the few countries where the poor are actually getting poorer. Komamura Kōhei draws on hard data to document this trend while examining its social and policy implications.

Japan’s welfare rolls have swollen dramatically in recent years. In December 2014, the number of needy persons receiving public assistance, known in Japan as livelihood protection (seikatsu hogo), topped 2.17 million, a new post–World War II high. While about 40% of the households receiving such benefits consist of elderly individuals or couples, younger recipients are also on the rise.

In short, Japan has a pressing poverty problem. Yet politicians continue to clash over the efficacy of income redistribution versus growth-oriented policies, and public opinion vacillates according to the prevailing social conditions and the tenor of media coverage.

In 2007 and 2008, the nation was shocked by reports of elderly citizens who had starved to death after their welfare benefits were cut off. During the global recession of 2008–9, media coverage called attention to burgeoning numbers of laid-off and homeless “temporary” workers, many of whom had congregated in a vast tent city in Tokyo’s Hibiya Park. Such stories fueled public concern over growing poverty and inequality, and the climate of opinion swung in favor of redistribution. More recently, as media reports have focused on the rising number of welfare recipients and cases of welfare fraud, support for redistribution policies has waned.

The Democratic Party of Japan, which emphasized income redistribution in its election platform, fell from power in 2012 after only three years at the helm. The current ruling coalition led by the conservative Liberal Democratic Party of Japan has unequivocally shifted the emphasis back to growth. What can Japan do to break the cycle of poverty?

Japan’s Poor Get Poorer

For much of the postwar era Japanese economic and tax policies favored a relatively equitable distribution of wealth. But in the early years of this century Prime Minister Koizumi Jun’ichirō (in office 2001–6) pushed through a series of supply-side-oriented reforms, including deregulation of the labor market. Koizumi’s successor, Abe Shinzō, upheld the trickle-down approach during his first term as prime minister (2006–7), calling for “a rising tide that lifts all boats.” Despite growing concerns over income and wealth inequality, no one has completed a rigorous study documenting the impact of those policies on Japan’s low-income households.

Meanwhile, the growth of income inequality among the world’s industrial nations has emerged as an issue of concern at the international level. In a 2011 report titled Divided We Stand: Why Inequality Keeps Rising, the Organization for Economic Cooperation and Development provides an international comparison of changes in average real income among households in the top 10% and bottom 10% between the mid-1980s and the late 2000s, correcting for differences in household composition and cost of living (figure 1).

In the majority of OECD countries income has grown much faster among high-income households than low-income household, indicating that income inequality is growing. Only in a handful of countries, such as France, did income grow faster among the bottom 10% than the top 10%. Yet during this same period, while the gap between rich and poor has widened in most countries, the real income of those at the bottom has also grown, however slowly, in every OECD country except Japan. In Japan the mean real income of low-income earners has contracted at an average annual rate of 0.5%.

Concentration of Wealth

Let us look a bit more closely at trends in income inequality and poverty within Japan. To assess these trends accurately we need to consult and compare a number of relevant indicators.

The first two indicators are mean and median income. According to the Comprehensive Survey of Living Conditions compiled by the Ministry of Health, Labor, and Welfare, mean or average household income (total household income divided by the number of households) in Japan was ¥5.37 million in 2012. However, median household income (the income at the midpoint of the nation’s income distribution, or the amount compared with which half of all households earn more and half earn less) was only ¥4.32 million. When the mean is substantially higher than the median, it indicates that the average is being driven up by high incomes among a relatively small number of households near the top of the income ladder.

Turning to trends in Japanese median household income between 1995 and 2012, we find that leaving aside changes in household composition and the growth in the elderly population the median declined ¥1.2 million over about two decades, dropping from ¥5.5 million in 1995 to ¥5.0 million in 2000, ¥4.58 million in 2005, and ¥4.32 million in 2012.

Next let us analyze the current distribution of income. In 2012, households earning ¥2 million or less accounted for 19.4% of all households, close to one-fifth. This means that about 20% of Japanese households fell below the relative poverty line (discussed below), defined as half of the median income, or ¥2.16 million. Households earning ¥13 million or more accounted for 4.8% of the total, and those earning ¥10 million or more (high-income households) accounted for 11.3%. In round figures, then, we can say that roughly the top 10% of Japanese households are in the high-income category (earning ¥10 million or more annually), 70% are middle-income (between ¥2.01 million and ¥9.99 million), and 20% are low-income (¥2 million or less).

To clarify the degree to which income has become concentrated in the hands of the wealthiest we can consult the OECD database, which provides data for each country regarding the share of total gross (before tax) income earned by the top income earners. In Japan the share of income accounted for by the top 5% rose rapidly from the 1990s on and now approaches 25%. Although the concentration of income at the top is lower in Japan than in the United States (about 35%) or Britain (roughly 30%), it is substantially higher than France’s (21%) or Sweden’s (17%), for example.

  • [2015.04.21]

Professor of economics, Keiō University, specializing in economic and social policy. Has been an associate professor at Surugadai University and a professor at Toyo University. Author of Nihon no nenkin (Japanese Pensions), Daihinkon shakai (The Great-Poverty Society), and other works.

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