Gap-Widening Society Eiichi ARAKI

Gap/Inequality ? • The gap between the rich and the poor. – Income inequality

• The gap between HAVEs and HAVE NOTs. – Property/Wealth (partly inherited) – Human capital (partly inherited?)

• Inequality of opportunities • Inequality of results

Widening ? • Once, Japan was said to be the most equal society in the world. Or, the most successful socialist country in the sense of the equality of results. • Actually, once upon a time in 1980s, most Japanese thought they are middle-class. • But now, the word “Gap-widening” is in fashion. The mass media are enthusiastic over broadcasting the word and everybody speaks it.

Rumours • According to OECD’s relative poverty ratio, Japan is the second “poorest” country in the world following the 1st USA. • A few hundred people died of hunger last year in Japan. The number of suicide has seen a drastic increase. Many parents can not afford children’s school fees. Many people are suffering from the situation of so-called “Working Poor”. • Average over 8th quartile / Average under 2nd quartile = 168 , which was only 10 in the beginning of 1980s. • All the above are quoted from a TV program broadcasted on 9/Sep./06 by Asahi Broadcasting Company.

Evidence (1) 9,000

1995 1998 2001 2004

6,750

4,500

2,250

0 -100

-200

-300

-400

-500

-600

-700

-800

-900

-1000 -1500 -2000 -2500 2500-

Income Distribution in Japan

Evidence (2) Gini Coefficient

The Economist, Jun 15th, 2006

Gini coefficient On the horizontal axis, people are located in ascending order from the poorest to the richest. And the solid curve, moving from the poorest to the richest, plots the proportion of people against the corresponding proportion of total income obtained by those people. For instance, 100a% people from the poorest hold 100b% of total amount of income in the society. This curve is called Lorenz curve. And the Gini coefficient is (the shaded area)×2. As you can easily see, it takes a value in the range 0-1. In the perfect equal society, it will be 0. In the perfect inequal society, it will be 1.

Evidence (3) OECD’s Poverty Ratio recalculated by a Japanese researcher

Rate of households on relief, the livelihood-protection

Evidence shows... 1.

2. 3.

4.

Japan’s Income Distribution has been gradually shifting towards the lower direction in every class, which means the average/median income is gradually decreasing. Japan’s Gini coefficient has been gradually increasing, which means the gap is gradually increasing. However, the poverty-ratio was almost same or already high as in 1980s, which seems to suggest the sudden rise of the gap has not occured. The rate of household on relief has been rather decreasing constantly, which seems to suggest the number of the extremely poor with no relatives is decreasing.

However, • If it comes to “gap-widening society”, we cannot get away with the problems of young people.

The issue of unemployment among young people 15.00 15-24 25-34 35-44 45-54 55-64 11.25

7.50

3.75

0 平成７年

  ８

  ９

  10

  11

  12

  13

  14

  15

  16

  17

NEET and Freeter • NEET (Coined in Britain in 1970s) – Aged 15-34 excluding housewives Not in Employment, Education,Training – 0.67 million (1992), 0.85m (2002)

• Freeter (Japanese English) – Aged 15-34 excluding students and housewives Part-time workers or job searchers Jobhopper, work for a minimum of need – 101 million (1992), 213m (2004)

Problem of NEET/Freeter • Obstacles to the economic growth – OJT ( on the job training ) will not work – Shortage of matured workers, let alone of unskilled workforce.

• Burden to the society – Who takes care of them in the future? – Government deficit – Social unrest

• Accelerate immigration

Why young people will not work? • Demand side – Demand for permanent workers declined • High level of Japanese worker’s wages • Need to improve the competitiveness

• Supply side – (Guardian Nov.2004) said, “Japanese NEET is a problem of a rich country and nothing to do with our original NEET problem” – What is the “problem of a rich country” ?

“Parasite single” • A word in vogue. Along with NEET, on every Japanese lips. • Parasite single: Young people who are not married, living in parents’ house and completely depending on parents’ income for their daily lives. • Cf. Parasite: a lazy person who lives by getting money, food etc from other people (Macmillan English Dictionary)

Parasite single (2) – More than half of J.Y.P. in their 20s – Even in 30s, 1 of 5 men, 1 of 8 women – Aged 35-40, 22% of men, 19% of women are not married. These numbers were 5.6% in 1975. – Marriage is not the means to raise the degree of life-satisfaction.

Satisfaction in daily life • 60% of Japanese young people said they were satisfied with their lives in 1973, whereas 73% of them said so in 1997. • Japanese young people are rich simply because their parents are rich, and they have never been annoyed with their basic daily lives for the past few decades. • They can not endure a tough job. Even a slight discomfort let them leave a job.

Pursuit of “higher • Customers of “hobby-industries” are mostly “parasite singles”. • Absolutely satisfied with material daily life, “parasite singles” are seeking for “higher jobs” which they think they deserve. • They will not take “lower jobs” as their own vocation.

A Desperate feeling • Young people has begun to despair of their future in the long economic depression. • At least, they have lost the traditional morale to dedicate themselves to a company or the society because of ... – Collapse of life-time employment system – Collapse of the national pension system

Complicated,... • It is too complicated to get some decisive conclusions. So, I want to give a rough summary of some famous arguments by experts in this subject. – F.Otake[2006]

Why has the Gini coefficient risen ?

Why has the Gini coefficient rose ? • G.c. is higher in the older age group. • G.c. within each age group unchanged. • Recently the population in the oldest age group has been increasing. • Therefore, the recent rise of G.c. has been caused by the increase of the number of old people. • This is an inevitable thing in an ageing society. And, It does not necessarily mean Japan is getting inequaly because the retired old people usually have a fair amount of savings although their income is zero.

Why do people talk about “the gap-widening society” so nervously? People are nervous of the gap-widening in the future. •

Actually, the gap in consumption expenditure show a sign of widening.

•

Through the bubble and the long deflationary depression, the gap in financial asset has widened. People confuse it with income-inequality.

•

Among young people, the unemployment rate rose and the number of part-time workers increased. Actually, G.c. rose in the youngest group.

•

The seniority-order wage system is collapsing. Instead, many big companies are introducing wages of performance, a result-related wage system.

•

The mobility among social classes/positions is decreasing.

•

In the progressive income tax and the inheritance tax, the tax rates for richer people have been alleviated.

Does deregulation promote the gap ? Deregulation, to remove regulations to protect some people and industry, has three effects. •

Reduce the income of the people who has been protected.

•

Raise the income of the people who will newly join.

•

Raise the productivity of the industry due to the principles of competition.

Generally, the wages of the people in 1 are higher than the people in 2. So, it is highly probable that deregulation will narrow the gap. People tend to confuse the influence of deregulations with the influence of the long depression.

Are the gap-widening among young people Not sure. Among young people, the gap between regular workers and Freeter has been widening. •

If the increase of Freeters is caused by the depression, the gap will sooner or later be reduced. (But, considering the low mobility of social positions in Japan, the current Freeters may not become a regular worker. So, the gap in the current young generation may be lasting for ever.)

•

If the causes are structural ones, the gap will persist. If technological innovation and globalization is bringing the decrease of the demand for domestic unskilled young workers, the gap will be permanent.

Labour cost (1) Comparison of wages paid by local domestic companies

Country

Average wages per month (local currency)

Average wages per month (1000Yen)

Japan

293.1

293,100

USA

247.1

Thailand

Year

Exchange rate

yen

2000

1

2,301

US $

2000

107.4

18.4

5,907

baht

1999

3.11

South Korea

14.5

1,602

won

2000

9.03

China

9.0

729 yuan

2000

12.36

Yearbook of International Labour Statistics 2001

Labour cost (2) Comparison of wages paid by local Japanese companies

Country/County

Average wages per month (1000 yen)

Malaysia

27.3

Thailand

22.4

Indonesia

13.2

Philippine

18.9

Liaoning, Chiana

13.6

Beijing, China

14.7

Shanghai, China

22.0

Jiangsu, China

15.3

Guangdong, China

14.1

OECD’s poverty ratio reconsidered This ratio has three problems. 1.

This is a relative ratio. So, a high value in rich countries does not mean the absolute poverty.

2.

Calculation on an income basis is not precise because person with zero income and huge assets is regarded as poor.

3.

OECD is using a data collected by Japanese welfare offices, which includes far more samples of poor people than other Japanese statistics like the Household Survey.

Concluding Remarks “Inequality and the American Dream” (The Economist, Jun 15th 2006) Inequality is not inherently wrong – as long as three conditions met: first, society as a whole is getting richer; second, there is a safety net for the very poor; and third, everybody, regardless of class, race, creed or sex, has an opportunity to climb up throuth the system.