Michael Moore’s documentary, “Capitalism: A Love Story“, has spurred some talks on the class divide (not yet a war) in the United States. The documentary itself was vintage Michael Moore — simplistic, sometimes polarizing storytelling with a touch of humor. There were two sources mentioned that were interesting: first was a leaked Citigroup document describing the increasing rich-poor divide (Kapur et al. 2005), initially supposed to be distributed only to its wealthiest customers. Second, he showed a never-before-seen video of FDR reciting the Second Bill of Rights (right to education, shelter, health care, etc.). The latter Rights of which never passed in the United States, while Constitutions of the war-trodden countries (e.g. Japan, Continental Europe save for Italy) included them; which of course leads back to the first point; countries like Japan benefit much from being an egalitarian society compared to countries like the United States, United Kingdom and Canada — the plutonomies.
Listening to Thom Hartmann recently, and I realized he might be the first one in the mass media to finally frame the political fight not on the political spectrum, but the class spectrum (populist vs. elite). Much of the progressives and the libertarians (even the “teabaggers”) have much in common. They are all against the concentration of power. As many of the politicians are bought off by corporations and allied by lobbyists, a strong populist third party is sorely needed to calibrate policies wrt the people; thus, campaign finance reform becomes one of the most important issue for the long term. At least the Democratic votes may have started to turn the tide a bit. Case in point: the Democratic candidate Creigh Deeds lost big in the recent Virginia Governor’s race — the loss largely attributed to Deeds’s parroting of corporate talking points and not running on progressive causes (independents “shifted” as well).
Japan’s political divide is obviously not nearly as big as in the United States. In place however, ever since the bubble economy, Japan has had a long-running media storyline of a class divide and rising inequality. The combination of Horiemon’s attempt to singlehandedly break the status quo of gridlocked politics and economy and his subsequent arrest, former PM Koizumi’s [attempted] structural reforms, the recent economic collapse (derived from the plutonomies) and DPJ’s historic election were all catalysts to push the narrative further that the class divide is growing. Japan has high expectations of living and are very sensitive to current trends so problems on inequality can be exaggerated (増田 2009).
There are of course a multitude of ways to look at inequalities. Like in the first figure up top, the proportion of top 1% earners are considerably less for Japan compared to the plutonomies (although a little uptick at the end). I’m sure the trend of the United States is even steeply higher if you take more recent data as the big companies are merging into something ginormous. We can also look at the income share of the top 20% vs. the bottom 20% earners. In Japan, we see that they are a lot closer than in the U.S., where there is a huge gap (*note: not directly comparable; only for illustrative purposes). Ratio of the top 10% vs. bottom 10% income share is about 4.5 for Japan and 15.9 for the United States, while the European countries sit at around 6~9. In 2006, Japan’s incomes of a CEO to average worker ratio declined to 11, while the U.S. is at 39 and U.K. at 31 (Mishel, Bernstein and Allegretto 2007).
The Gini coefficient is an alternative, popular way to measure economic inequality. The main advantage to using the Gini coefficient is the lack of units (like GDP or income). It doesn’t matter how large the country or the economy is to derive the Gini index (yes, biases can occur from how large the economy is, but at least the numbers are comparable). The ratio of top and bottom earners satisfies the lack of units characteristic, but the numbers can be influenced by how well-off the economy is. Of course there are deficiencies in the Gini index as well, as it is hard to see where the inequality changes (did the rich increase? or poor decrease?), and the inequality value itself changes using different datasets (i.e. assumptions to what a “household” is). Therefore, the Gini indicator (relative inequality) should always be accompanied with economic and social indicators (absolute inequality).
There are different sets of the Gini index lying around the internet. One measure by the U.N. Human Development Report 2009 reports that Japan has the second lowest inequality of all countries (next to Denmark). I remain somewhat suspicious of this value because of peculiarities of the Japanese demographic: aging and changing household structure (勇上 2003). In the 1970s, Japan was touted as one of the most egalitarian societies on Earth (平等神話). Many subsequent analyses has shown that this was a little exaggerated. Gini statistics back then required a family budget (家計簿); therefore, people that were living by themselves and farmers weren’t included. This tended to depress the Gini coefficient and the statistics that calculated income inequality for all households put Japan about in the middle for advanced countries (勇上 2003). This result is further shown true by statistics from the OECD, CIA and the Japanese Government. Needless to say, every country has their own peculiarities (e.g. food stamps in the U.S.) and can be biased up or down because of it.
Above are the recent Gini stats on Japan (OECD 2008). The OECD stats were the most pessimistic of the batch (for Japan). We should remember that the shifting demographics from young to old can artificially inflate inequality numbers. Fixing the demographics from the 80s to 90s showed that about 30% of the Gini increase was due to aging (大竹・斉藤 1999). Of course regardless of how the “true” economy is functioning, we can’t ignore the important concerns that an aging population incurs. Even including current downward trend, the pace of unequalness from the mid-1980s is second highest behind Italy, and the current poverty rate is 4th highest (OECD 2008).
OECD’s poverty rate is well-correlated with the Gini coefficient and has a qualitative relationship with the employment rate.
The positive relationship (R2 = .70) between poverty rate and the Gini coefficient would indicate Japan should be advised to lower the Gini through whatever economic policies. The right hand graph shows poverty rate as a function of employment rate. Theoretically, the higher the employment rate, the lower the poverty rate. But the countries above the green line (average) have relatively (possibly increasingly) high poverty rates. Countries in the top-right quadrant can be classified as the group of countries that have a high proportion of the population working out of necessity. All of the countries in this region also overshoot the red line (average) on the Gini graph.
This is evidence for employment inefficiency. In Japan’s case, this is most likely due to a combination of hiring only recent college graduates (新卒一括採用), the tendency to retain the same workers for literally their lifetimes (終身雇用制), wages are determined mainly by experience and not results (年功序列), and globalization — thus, the high proportion of non-regular workers that get included in the poverty stats. There is some evidence that the poverty stats can be biased positively due to the wage inequality wrt age (年功賃金). Meaning, if a young, regular worker is working at a company within what “poverty” is defined as by the OECD, there’s a pretty good chance that he/she will be fine in the long run.
Japan shines in the department of not worrying about absolute necessities (food, health care and shelter). Here are the percentage of people not able to satisfy their needs due to lack of income (food in blue checks, health care in red zigzags, shelter in green dots). Countries from left: U.S., Canada, Mexico, U.K., France, Italy, Germany, Czech, Japan, Korea, Turkey.
Japan has also the lowest (aside from Sweden) regional income inequality in the world; therefore, the poverty (or lack thereof) are pretty consistent across all borders (relatively no spots of rabid poverty or inequality).
To summarize: Japan has moderate to high income inequality wrt other advanced countries as workers aren’t getting the incomes they want; yet there is a low ratio of top:bottom earners and the rich are not nearly as rich as in other countries.
Looking at the OECD stats, it’s easy to say that Japan should reduce its inequality to reduce poverty. However, reducing the inequality requires either or both reducing the top earners or raising the bottom. Reducing the top earners would be difficult because there is already tons of restrictions to earn a shitload like in the U.S. and Japan does “better” in this category than any other country. Raising the bottom earners would also be difficult since many are satisfied their basic needs in life. The poverty rates can be misleading if there is a large proportion of the population living off pensions (aging population) or their past fortunes (“non-working rich”). The divide really seems to be occurring at the lower earners (“working poor”) to middle earners (regular, non-part-time workers); therefore, job liquidity should be the real key to shrink the gap.
Take note that the OCED stats show relative poverty stats to each of its own country. So it’s still very possible that a country with worse relative poverty stats can be richer if the country’s absolute poverty and wealth is higher.
Refs:
- 増田悦佐, 格差社会は嘘である. 2009. PHP研究所.
- 勇上和史, 日本の所得格差をどうみるか, March 2003, 日本労働研究機構.
- 大竹分雄・斉藤誠(1999)「所得不平等化の背景とその政策的含意? 年齢階層内効果、年齢階層間効果、人口高齢化効果」『季刊社会保障研究』Vol.35, No.1, pp.65-76。
- OECD, Growing Unequal ?: Income Distribution and Poverty in OECD Countries (Complete Edition – ISBN 9789264044197). 2008, no. 10, pp. 1 – 312.
- Kapur et al. Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Inbalances. October 16, 2005. Citigroup.
- The State of Working America, 2006 / 2007 by Lawrence Mishel (Editor), Jared Bernstein, and Sylvia Allegretto. ISBN: 9780801473555, 0801473551. Cornell University Press. December 2006.
I wonder if this has something to do with the concept of Life Time Employment and the responsibility of companies to take care of their workers?
The contradiction occurs when the Gini is moderate-to-high whereas the top:bottom earner ratio is low. I don’t think I’ve sufficiently explored the issue, so I’m more hypothesizing than concluding. The next step for me would be to look at the inequality for [non-]regular workers and the inequality wrt age.
Blame the freeters. Over 20% of workers now work part-time (supposedly approaching 30% in the near future), living on an average of something like US$1500 a month (roughly 130,000) yen. However, income inequality in Japan is something of a different beast, due to the ageing population, and the fact that most freeters live with their parents until their 30s/40s/forever. Given Japan’s penchant for lifelong employment, once they reach a certain age they’ve little chance of getting a ‘proper job’. They remain, in effect, children for life.