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Income gap among Japanese expanding, but not by much

by Yoshio Nakamura

Traditionally, the income gap between the rich and the poor has been rather small in Japan, creating what has become known as the “all-Japanese-as-middle class” mentality.

During the 1990s, the aggregate income earned b the richest 10 percent of the population accounted for about 21.7 percent of nation’s total income, compared with 25 to 30 percent in other industrialized countries.

The aggregate income earned by the poorest 10 percent of the population accounted for 4.8 percent of the total, much higher than the 1 to 2 percent in other nations.

Recently, however, a new argument is being made that Japan is becoming a “more unequal” society because the income gap is growing.

While a number of young entrepreneurs who founded information technology firms have been making headlines recently, the expanding ranks of the so-called freeters and NEETs (young people not in employment, education or training) is considered a serious social problem.

Newspapers are awash with advertisements for luxury cars priced at 20 million yen or watches costing 5 million yen, and financial firms are competing to offer new services targeting wealthy clients.

On the other hand, “100 yen shops” selling a variety of cheap products are doing brisk business.

Statistics show the income gap in Japan is not expanding that much.

The Gini coefficient is an index used to gauge the income gap in a country. It will read 0 if the income of the entire population is equal, and 1 if a single person accounts for all income.

It is true that Japan’s Gini coefficient, which hit 0.498 in the latest calculation, is on an uptrend when calculated using people’s primary income figures. But this is mainly attributable to the growing ranks of the elderly population.

While most of Japan’s elderly lose income when they retire, those who remain employed continue to be paid accordingly. If this factor is eliminated, changes to the income gap are almost nil.

If Japan’s Gini coefficient is calculated after taxes, welfare deductions and social security benefits, however, the latest figure becomes 0.381 — slightly lower than the previous data.

Some people argue that the wage gap is expanding between big and small companies. However, data show that the average annual income of an employee hired by a company with 1,000 workers or more fell from 6.27 million yen in 1999 to 6.25 million yen in 2004.

Similarly, the average wage of an employee in a firm with a work force between 10 and 99 dropped from 4.07 million yen in 1999 to 3.95 million yen in 2004.

The gap between the two groups has expanded only slightly.

True, there is an increasing number of individual examples that are leading people to believe the income gap in Japan is expanding. But such examples do not immediately affect the nationwide trend, and it seems to me that the most recent arguments have been a bit overplayed.

I am also worried that some of the people making these arguments appear to be suggesting that any income gap is evil.

In Japan, people’s incomes are redistributed by multiple layers of policy measures, including tax, health insurance and pension premiums, and the payment of social security benefits.

Tax hikes are inevitable because Japan needs to repay government debts and cover rising social welfare costs. Increasing the consumption tax, which Keidanren considers a viable option because its impact on economic growth will be limited, often meets with opposition on the grounds that it will hurt weaker segments of the population.

Behind such arguments is perhaps a belief that a consumption tax hike will cause additional damage to the lower-income segment of the population that is increasingly being left behind by richer people.

However, data show that the income gap in Japan continues to be small and is not expanding much.

And policy measures are already being taken — almost to the point of excess — to redistribute people’s income.

I hope this matter will be calmly debated with such facts in mind.