Japan ranked second-worst among advanced economies in 2000 in terms of the relative poverty rate because nonregular workers with low wages rose amid the prolonged economic slump, the Organization for Economic Cooperation and Development said Thursday.

The portion of the population living in relative poverty, defined as having less than half of the median household disposable income, was 13.5 percent in 2000, the second-highest among OECD members, following 13.7 percent in the U.S., the OECD said in a survey on the Japanese economy.

“Rising income inequality and the increasing proportion of the population in relative poverty threaten to weaken the consensus for further economic reforms,” the OECD warned, dedicating an entire chapter to Japan’s disparity issue in the report for the first time.

In the survey released every 18 months, the Paris-based policy coordination body for advanced economies also attributed the widening income gap to the nation’s graying population, in addition to an increase in nonregular workers.

“Population aging is partly responsible for boosting inequality as it raises the proportion of the labor force in the 50 to 65 age group, which is characterized by greater wage variation,” the OECD said.

“However, the key factor appears to be increasing dualism in the labor market,” it said. “The proportion of nonregular workers has risen from 19 percent of employees a decade ago to over 30 percent.”

Japan has finally emerged from an extended period of economic stagnation following the collapse of the asset price bubble in the early 1990s, but must address such challenges as rising income inequality and an increasing population in relative poverty in order to sustain robust growth over the medium term, the OECD said.

A comprehensive approach, including reducing employment protection for regular workers and thereby weakening the incentives of firms to hire nonregular workers, would be required to reduce labor market dualism, it said.

Additionally, it is important to increase the coverage of temporary workers by social insurance and to enhance the employment prospects of nonregular workers, the OECD stressed.

“Dualism also has a negative impact on potential growth, as nonregular workers receive less training by firms, thus limiting their human capital and productivity gains,” it said.

Speaking at a news conference in Tokyo, OECD Secretary General Angel Gurria stressed the importance of training nonregular workers. “If they are not trained, then you have a permanence of dualism.”

OECD senior economist Randall Jones also said during the news conference that a lack of training hinders nonregulars from becoming regular workers. “That’s bad for the Japanese economy and bad for nonregular workers,” Jones said.

More than half of single working parents were in relative poverty in 2000, compared with an OECD average of around 20 percent, the report says. Significant poverty among single parents is a factor boosting the child poverty rate to 14 percent in 2000, well above the OECD average, it adds.

“It is essential to ensure that children in low-income households have adequate access to high-quality education to prevent poverty from being passed to future generations,” the report says.

Among other issues, the OECD said Japan must achieve a definitive end to deflation and successfully implement an effective monetary policy framework.

The OECD urged the Bank of Japan to be cautious in raising short-term interest rates. “A significant rise in market interest rates that is too early or too large would pose important risks to both economic activity and the fiscal situation,” it said.

Japan must also strengthen its integration into the world economy to benefit more fully from globalization, the OECD said. “Accelerating productivity growth also requires making fuller use of goods, services, capital, technology and human resources from abroad,” it said.

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