NIRA OPINION PAPER
No.53 | September 2020

NIRA OPINION PAPER
No.53 | September 2020

Expansion of Disparities During
the COVID-19 Pandemic- The Income Gap and the Digitalization Gap –Toshihiro Okubo
Professor, Faculty of Economics, Keio University
Senior Adjunct Fellow, Nippon Institute for Research Advancement (NIRA)

The current wave of globalization has starkly highlighted an expanding
global income gap and the stagnation of the middle-income bracket. Japan is no
exception. The shock of the COVID-19 pandemic appears to have significantly
expanded economic and digital disparities. This tendency was reflected in the
results of the “Questionnaire Survey on the Effects of the Spread of COVID-19 on
Telework-based Work Styles, Lifestyle, and Awareness,” two of which wereconducted by Toshihiro Okubo of the Keio University and NIRA.
The COVID-19 pandemic has not only caused an economic recession, but
has also sparked a wave of technological innovation, which may lead to a further
expansion of disparities. The background to this might be the fact that the use of
telework is linked to economic disparities. That is, while high-income workers andlarge corporations actively use telework and digital tools, which will increase theirproductivity in the future, lower-income strata and small and medium-sizedenterprises are not riding the wave of digitalization. As a result, economic
disparities are becoming more conspicuous due to the existence of digital
disparities.

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
1
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Introduction
The recession caused by the COVID-19 pandemic differs from previous economic
recessions in that digitalization is proceeding rapidly as a measure to prevent the spread of
the virus. Up to the present, it has commonly been argued that artificial intelligence (AI)would gradually steal jobs, and that certain occupations would ultimately disappear; however,the current wave of digitalization has appeared all of a sudden in the COVID-19 pandemic,
and it is rapidly engulfing us amid an economic recession. This wave of digitalization willchange the future Japanese economy.
Based on data obtained from NIRA’s “Questionnaire Surveys on the Effects of the
Spread of COVID-19 on Telework-based Work Styles, Lifestyle, and Awareness”, this paper
examines the most recent state of the Japanese economy, and considers relevant policy issues.

Globalization and Income Disparity
After the Second World War, free trade became a global trend. The theoretical pillar
that supported the promotion of free trade was the concept of “comparative advantage” intraditional international trade theory. What this means is that a nation’s export industry
increases its profits by specializing in the industries in which that nation is relatively strong.
The same nation’s import industry might be hit by cheap imported goods, but the fact that all
consumers are able to buy many cheap goods is an enormous advantage for the society overall.
Free trade therefore represents a positive benefit for the nation as a whole, and all that isthen needed is to implement an appropriate distribution policy across industries within thenation.
However, more recently, the globalization of production, i.e. the creation of global value
chains, has caused major changes in the assumptions on which traditional international trade
theory rested. As the division of labor at task level and production process level has spread
across the world, the distinction between export and import industries has now become
increasingly vague. Income disparities between occupations rather than between export andimport industries have expanded, and it has become difficult to implement distribution
policies as was previously the case. Domestic economic disparities consequent upon economic
globalization is therefore a significant issue today.
Recent trade theory (i.e. trade theory that encompasses firm heterogeneity) focuses on
the fact that productivity varies greatly across firms. Only an extremely small percentage ofhigh-productivity firms can export products and benefit from trade liberalization. Lowproductivity micro-enterprises, by contrast, in addition to not being able to export theirproducts, are exposed to fierce competition from overseas imports. Profits therefore decline
for low-productivity firms, and they exit the market. Broadly speaking, profits are shiftingfrom small to large firms in the wave of globalization.
Globalization has made significant advances, but at the same time, profits for SMEs,
and wages for the middle class and for unskilled workers have declined. Wealth is
Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
2This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

concentrated with a small number of large firms and high income earners, and the frustrationof the middle class whose wages are declining is accelerating the drift towards protectionism
and a nation-first orientation. This trend is also gradually becoming apparent in Japan.
Japan was once thought of as a homogenous society in which “everyone is middle class,” andlifetime employment and seniority-based wages were the social norm. However, with theadvance of globalization over the past 20 to 30 years, the nation’s mass manufacturing
production base has shifted to Asia, and domestically it has long been suffering from thehollowing out of its industry. Like other developed countries, wages among workers in the
SMEs and micro-enterprises and the unskilled workers that form the middle stratum havecontinued to stagnate, and disparities are steadily expanding.
The actual status of these disparities was clarified by the surveys of the status ofapproximately 12,000 workers amid the COVID-19 crisis conducted by Toshihiro Okubo of
the Keio University and NIRA1.

“Everyone is Middle Class” in Japan is a Story of the Past
We will look first at the income distribution among workers as demonstrated by the surveys.
Figure 1 shows the distribution of income among workers in terms of income brackets. The
distribution is rather skewed towards the lower-income bands. This reality is far from ahomogeneous society in which “Everyone is middle class.”2

The survey was conducted twice, once in April (before the declaration of the state of emergency) and once inJune (following the declaration of the state of emergency). The questionnaire survey and data analysis wereconducted by Toshihiro Okubo, Kiwamu Kato, Senior Architect for Future Corporation, and Atsushi Inoue,
Kozue Sekijima, and Hironari Masuhara of NIRA.
OKUBO, Toshihiro and NIRA (2020), “Results of a Second Questionnaire Survey concerning the Impact of the
Use of Telework to respond to the Spread of COVID-19 on Working Styles, Lifestyles, and Awareness (andPreliminary Report)” https://www.nira.or.jp/outgoing/report/entry/n200805_983.html,
https://www.nira.or.jp/outgoing/report/entry/n200630_976.html
OKUBO, Toshihiro and NIRA (2020), “Results of a Questionnaire Survey concerning the Impact of the Use of
Telework to respond to the Spread of COVID-19 on Working Styles, Lifestyles, and Awareness (andPreliminary Report)”
https://nira.or.jp/outgoing/report/entry/n200430_965.html
https://nira.or.jp/outgoing/report/entry/n200417_963.html
2 There is almost no bias in the income distribution in the surveys under discussion even when compared to the
Employment Status Survey (2017).
1

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
3This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 1 Income distribution among survey subjects
(%)

ab
ov
e
an
d

io
n
ill

ye
n

m

(n=12138)

10

m

ill
io
n

99
79.

m
9
66.
9

m
55.
99

ye
n

ye
n
ill
io
n

ye
n
on

m
4.
9

9

ill
i

ill
io
n

ye
n

ye
n
4-

m
33.
99

ill
i

on

ye
n
on
ill
i
m

22.
99

ill
io
n
m
9
11 .9

Le
ss
th
a

n

1m

ill
io
n

ye

n

ye
n

18
16
14
12
10
8
6
4
2
0

Source: Formulated by the author from “Results of a Second Questionnaire Survey concerning the Impact of the Useof Telework to respond to the Spread of COVID-19 on Working Styles, Lifestyles, and Awareness” (Okubo and NIRA,
August 2020). All figures below are formulated using the same source.

In order to explore the background to these results, we will look at the composition ofsurvey subjects in each income bracket in terms of industry, occupation (manufacturingindustry only), and firm size.
First, Figure 2 shows the composition of workers by industry. Overall, 17% were
employed in the manufacturing industry, 12% in the wholesale/retail sectors, 11% in medicalcare and welfare, 7% in information services, and 7% in banking and finance. Approximately
70% of the Japanese survey subjects were employed in service industries3. On the other hand,when we consider incomes by bracket, we find that the manufacturing industry accounts for
20% or more in the brackets from an annual income level of 5 million yen or more. It seems,
therefore, that workers in the manufacturing industry have maintained medium to highincome levels, and manufacturing firms still guarantee income and employment to a certain
extent. By contrast, the percentages become higher in wholesale/retail, restaurant andaccommodation, and other services, and this corresponds to lower income. The number of
employees in these industries has increased in recent years, demonstrating that job
opportunities are concentrated in these industries, which offer relatively low wages.

There is almost no bias with regard to the ratios of workers by industry in the surveys under discussion even whencompared with the Employment Status Survey (2017).
3

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
4This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 2 Makeup of survey subjects by industry for individual income brackets
Overall Average

6Less than 1 million yen

3

1-1.99 million yen

3

17

12

8

7

16
11

4

4

18

2-2.99 million yen

6

16

3-3.99 million yen

7

18

4-4.99 million yen

9

5-5.99 million yen

7

11

11

7

5

16

4

22

4

5

3

8

2

6

12

7

4

18

3 4

16

3 4

7

6

12

12

6

7

12

19

9

7

8

12

5

13

5

3

8

21

8

7

10

11

5

12

6

3

6-6.99 million yen

6

26

10

7

7-9.99 million yen

723

10 million yen and above

6

21

0%

10%

12

5

20%

7
6

8
9

6

13

30%

40%

11

6
8

50%

60%

4

4
7

10

11

2

11

11

3

4

5

11

6

70%

80%

11
90%

100%

(n=10, 516)
Agriculture, fisheries, forestry, marine products
Mining and construction
Manufacturing (including publishing and printing)
Wholesale and retail (including department stores and supermarkets)
Restaurant and accommodation
Finance, insurance, real estateTransport
Information services, survey, communications and information (communications such as telephones, etc.,
broadcast stations, Internet services)Electricity, gas, water, heating
Medical, welfare
Education, learning support services (including school education)
Other services
Public service (national or local)
Other

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
5This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 3 shows the relationship between income bracket and occupation, with a focus
on the manufacturing industry. For the manufacturing industry, the higher the income
bracket, the higher the percentage of management-level occupations represented in thatbracket. At an annual income of 10 million yen and above, management-level occupations
represent 64% of the total. By contrast, as the income level declines, the percentage of
production process workers increases, reaching 30-38% at an income level of up to three
million yen per year. A noteworthy feature is the fact that office workers represent between
21 and 35% of workers in all income brackets up to 10 million yen per year; the level ofvariation between income levels here is comparatively low.
Figure 4 looks at the size of the firms with which workers were employed, categorized
by income level. As the income level increases, the percentage of large corporations goes up,
and, by contrast, the percentage of SMEs tends to decline.
Figure 3 Occupational makeup of workers by income level in manufacturingindustry
Overall Average

29

Less than 1 million yen

28

30
20

23

1-1.99 million yen

20

19

13

9

30

5

17

38

1

19

2-2.99 million yen

32

28

3-3.99 million yen

33

33

20

4

9

4-4.99 million yen

35

33

18

5

9

5-5.99 million yen

32

33

6-6.99 million yen

31

36

21

7-9.99 million yen

12

10 million yen and above
0%

35
19

30

18

4

Clerical position
Production process operator
Retail, services, etc.

18
32

64
40%

60%

7

12

9

3

20%

3

4
6
8
3

80%

Engineer, researcher, etc.
Administrative position

100%(n=1,742)

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
6This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 4 Firm size by income level
Overall Average

15

Less than 1 million yen

18

17

27

28

1-1.99 million yen

17

2-2.99 million yen

15

3-3.99 million yen

14

15

4-4.99 million yen

1215

5-5.99 million yen

10

6-6.99 million yen

8

10

12

7-9.99 million yen

11

9

10

10 million yen and above

13
0%

19
18

24

19

21

22
25

14

13
20%

2

21

2

23

3

26

2

28

20

4

38

22

6

40

17
8

14

20

21

4

11
17

19
16

13

28

9

43

15

10
48

40%

60%

4
80%

100%

(n=10516)
1-4 employees
30-99 employees
500 employees and above

5-29 employees
100-499 employees
Government office / Public agency

As per the figures above, there was a significant concentration and skewing in termsof industry type, occupation and firm size. There is a concentration of face-to-face service
industries (restaurant and accommodation, wholesale and retail, and other services), andSMEs and micro-enterprises in the lower-income brackets, while the higher-income brackets
see a concentration of large firms, information and communication industries, andmanagerial positions. Income gaps were particularly marked within the manufacturingindustry, with, for example, production workers sitting at low income levels.

Income Decline due to the COVID-19 Pandemic
Next, we will consider the economic impact of the COVID-19 pandemic. The surveys
allow us to compare changes in income from January to March 2020 with changes from March
to June 2020. As Figure 5 shows, looking separately at individual income brackets, we seethat the incomes of less than 30% of workers declined overall in June as against March(workers who responded that their income had “Declined significantly” or “Declined”). By
contrast, slightly less than 70% of workers responded that there had been “No change” intheir income, and around 5% responded that their income had increased. Comparing
responses for June and for March, severe negative economic impacts were already being
experienced in March, and the percentage of workers whose income had declined increased
for all income brackets in June. As this indicates, the worsening trend continued and
Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
7
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

expanded in June. The negative effects of the COVID-19 pandemic tend to concentrate inparticular among the lower-income brackets.
Figure 5 Changes in income by income bracket
Overall Average
As of March (against January)
As of June (against March)

78Less than 1 million yen
As of March (against January)
As of June (against March)

1214

1-1.99 million yen
As of March (against January)
As of June (against March)

9
112-2.99 million yen
As of March (against January)
As of June (against March)

7
9

17

3-3.99 million yen
As of March (against January)
As of June (against March)

6
7

15

4-4.99 million yen
As of March (against January)
As of June (against March)

5
7

14
20

5-5.99 million yen
As of March (against January)
As of June (against March)

4
6

17
20

6-6.99 million yen
As of March (against January)
As of June (against March)

4
5

12
18

78
73

51
31

7-9.99 million yen
As of March (against January)
As of June (against March)

3
5

12
17

81
74

31
41

10 million yen and above
As of March (against January)
As of June (against March)

4
6

11
15

79
74

4 2
42

16
20
21
23

31
5 2

69
62

31
51

20

73
66

21
41

20

75
68

31
41

76
68

41
41

76
70

31
31

20

Declined

31
41

63
57

19
21

0

Significantly declined

73
66

40

No change

60

100
(%)
(March n=10516, June n=12138)
Increased

80

Significantly increased

Furthermore, considering the negative impact of the pandemic by industry, as shownin Figure 6, the impact is concentrated in certain industries. In June, 30% of workers in therestaurant and accommodation industries responded that their incomes had “Significantly
declined” and 28% responded that their incomes had “Declined,” making a total of 58%. This
figure is extremely high compared to other industries. The next greatest negative impact isseen in the education and learning support industries (including school education) and otherservice industries. Given that these industries involve face-to-face contact, measures to
Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
8
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

prevent infection have a considerable impact. In the restaurant and accommodationindustries in particular, it can be assumed that the negative impact was already conspicuousamong small-scale owner-run operations as early as March.
Figure 6 Changes in income by industry
Agriculture, fisheries, forestry, marine products

8
6

As of March (against January)
As of June (against March)
Mining and construction
As of March (against January)45

As of June (against March)

19
16
13
17

68
74

42
31

78
73

31
41

Manufacturing (including publishing and printing)
As of March (against January)616
As of June (against March)
623
Wholesale and retail
As of March (against January)58

As of June (against March)

17

Restaurant and accommodation
As of March (against January)
As of June (against March)

22

24
30

Finance, insurance, real estate
As of March (against January)45

As of June (against March)
Transport
As of March (against January)
As of June (against March)

26

13
18

7
10

17

31
41

74
66

31
40
46
35

28

31
5 2

79
73

31
40

71
65

41
6 1

18

Information services, survey, communications and information
As of March (against January)
5
13

75
67

As of June (against March)

4

17

77
74

41
41

Electricity, gas, water, heating
As of March (against January)
As of June (against March)

4
5

18
16

69
70

8 1
7 1

4
4

14
17

79
74

31
41

Medical, welfare
As of March (against January)
As of June (against March)

Education, learning support services (including school education)
As of March (against January)821
As of June (against March)
10
23
Other services
As of March (against January)
As of June (against March)

10
11

Public service (national or local
As of March (against January)
As of June (against March)

2 7
2 11

Other
As of March (against January)1112

As of June (against March)
0

18
22

67
60

21
6 1

68
62

21
41

86
82
19
20

41
41
67
63

20

40

60

20
51
80

(March n=10,516, June n=11,849)

Significantly declined

Declined

No change

Increased

100(%)

Significantly increased

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
9This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figures 7 and 8 show changes in income (by income bracket) separately for the
manufacturing industry and for face-to-face service industries. In the manufacturing industry(Figure 7), comparing June to March, there is no significant difference among the different
income brackets with regard to income. 26-34% of workers in all income brackets up to 10
million yen per year reported that their income had declined. It seems that for the
manufacturing industry, the decline in income due to the COVID-19 pandemic is notparticularly highly correlated with the income bracket. Therefore, for the manufacturingindustry, we cannot say that the lower the income bracket, the higher the proportion ofindividuals whose income has declined.
By contrast, in the face-to-face service industries4 (Figure 8） the proportion of workers
whose income had declined increased the lower the income bracket. Looking at results as ofJune for income brackets up to an annual income of six million yen, we find that while 33%
in the 5 to 5.99 million yen bracket and 32% in the 4 to 4.99 million yen bracket indicatedthat their wages had declined, the figure exceeded 40% in the 2.99 million yen and below
income bracket. In the six million yen and above category, the figure was less than 25%.
Based on these results, while specific percentages of workers in each income bracket in
manufacturing are experiencing a decline in wages, lower-income employees in the face-toface service industries are seeing a greater decline, and it can be predicted that this income
gap will further expand.

Here, “face-to-face service industries” indicates restaurant, accommodation, education and learning support,
transport, and other service industries.
4

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
10
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 7 Changes in income in the manufacturing industry by income bracket

Less than 1 million yen
As of March (against January)11

As of June (against March)

12

16

69
22

31
64

21

1-1.99 million yen
As of March (against January)

8

20

71

10

As of June (against March)

8

22

64

51

72

31

65

50

2-2.99 million yen
As of March (against January)6

As of June (against March)

7

18
22

3-3.99 million yen
As of March (against January)616

As of June (against March)

325

As of March (against January)

618

As of June (against March)

7

75

30

69

21

4-4.99 million yen
73
22

4

68

31

71

30

63

51

5-5.99 million yen
As of March (against January)

4

As of June (against March)

6

22
26

6-6.99 million yen
As of March (against January)

4

As of June (against March)

12

78

8

60

22

65

51

7-9.99 million yen
As of March (against January)

4

As of June (against March)

3

12

81

21

23

71

30

10 million yen and above
As of March (against January)
As of June (against March)

4 6
2

85
18

0

24
75

20

40

60

22
80

(March n=1742, June n=1930)

Significantly declined

Declined

No change

Increased

100(%)

Significantly increased

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
11
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 8 Changes in income in face-to-face service industries by income bracket
Less than 1 million yen

As of March (against January)
As of June (against March)

17
18

As of March (against January)
As of June (against March)

14
15

24
25

58
52

31
7 1

As of March (against January)
As of June (against March)

15
16

20
24

62
54

31
51

As of March (against January)
As of June (against March)

12
15

19

66
61

30
41

69
62

31
6 1

75

22
33

1-1.99 million yen

2-2.99 million yen

3-3.99 million yen
4-4.99 million yen

As of March (against January)
As of June (against March)

6

As of March (against January)
As of June (against March)

611

As of March (against January)
As of June (against March)

67

7

As of March (against January)
As of June (against March)2

13

As of March (against January)
As of June (against March)

55-5.99 million yen

6-6.99 million yen
7-9.99 million yen

10 million yen and above

28
27

19
20

12

8

16

11

52
47

20
22
81

11

10

8

0

20

40

61

41
40

77

79

16

20
6 1

70

32
5 2

81
76

41
22

60

80

(March n=1913, June n=2144)

Significantly declined

Declined

No change

Increased

100(%)

Significantly increased

The Digitalization Gap during the COVID-19 Pandemic
The COVID-19 pandemic has had a negative impact on face-to-face services, andincome disparities have expanded. However, the effect of the current pandemic is not limited
to spurring the typical economic slump that we have witnessed before. In this case, teleworkhas been promoted as a measure to prevent the spread of the virus, and as a result, a wave ofdigitalization is crashing upon workers.
Given this, we will now change our perspective and focus on the “digitalization gap”.
Figure 9 shows changes over time in the rate of use of telework by income bracket. Alreadyas of January a significant difference appeared in the rate of use of telework between income
brackets. The rate of use of telework increases as income rises to around 10 million yen per
year. Looking at the rate of utilization of telework from March onwards, the rate increased
even further with income through April and May. Even in June, when the state of emergency

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
12
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

was lifted, the rate of utilization of telework remained high at 30-40% for an income bracket
above a certain level (7 million yen per year and above). By contrast, there was little growthin the telework utilization rate for lower income brackets.5
A number of background factors can be considered here, including 1) Some occupations(e.g. manual labor) and industries (e.g. face-to-face services) are unsuited to telework because
face-to-face services and manufacturing procedures can only be performed at the actual placeof work; 2) Many lower-income workers are employed by SMEs that do not possess thewherewithal to prepare a telework environment. Thus, the income gap and the digitalization
gap are linked.
Figure 9 Changes in rate of utilization of telework by income bracket
Less than 1 million yen
1-1.99 million yen
2-2.99 million yen
3-3.99 million yen
4-4.99 million yen
5-5.99 million yen
6-6.99 million yen
7-7.99 million yen
8-8.99 million yen
9-9.99 million yen
10-12.49 million yen
12.40-14.99 million yen
15-17.49 million yen
17.50-19.99 million yen
20 million yen and…
0

10

20

As of January 2020 As of March30
As of June40

50

As of April-May

Telework utilization rate as of January
Increase as of March against January

60

70

(%)

(n=12,138)

Under such circumstances, there will be limits to the penetration of telework even if
the government attempts to promote its uniform spread as a measure to prevent the spreadof COVID-196. This is because suitability for telework differs across industries. While there
are firms that can maintain their operations through telework, face-to-face service industries,
5 For details, see Okubo, Toshihiro (2020), “Spread of COVID-19 and Telework: Evidence from Japan,” Covid
Economics (2020.6. 26). https://cepr. org/content/covid-economics-vetted-and-real-time-papers-0
6 For details, see Okubo, Toshihiro (2020), “Telework as a Long-term Solution: Problems and Contradictions toOvercome”, NIRA Opinion Paper NO. 47.

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
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This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

which are unsuited to telework, are at the center of measures to prevent the spread of COVID19. Employees of face-to-face service industries are unable to work, and their incomes decline.
Alternatively, working increases their risk of infection. In this way, the income gap and thedigitalization gap work in tandem to further increase economic disparities.
There appear to also be disparities across workers who utilize telework. From this point,
our focus will be on teleworkers only. Our survey asked teleworkers about changes in work or
lifestyle as a result of the utilization of telework. Figure 10 shows the percentage ofteleworkers responding that each item had tended to increase or decrease, by firm size. Blueand orange cells indicate a relatively high percentage of teleworkers.
What is clear here is that many teleworkers working for large firms (500 employees
and above) feel that there are both advantages and disadvantages to telework. Problems wereexperienced in doing telework, with 36% of teleworkers for large firms feeling that
communication with their colleagues was diminished, and 30% feeling that their access toconsultation and advice regarding their job had been reduced; at the same time, highpercentages of the teleworkers responded that they were more relaxed when working (23%),that they could adjust their working times more easily (17%), and that their communication
with their family had been enhanced (25%). In the future, if large firms are able to create
environments for telework, the utilization of telework by their employees will enable them toreap even further benefits. However, in the case of small and medium-sized enterprises, there
was no change in work or lifestyle due to the utilization of telework, and teleworkers did not
enjoy the benefits of teleworking. This demonstrates that many SMEs are not able to utilize
telework effectively.

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
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This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

Figure 10 Changes in work and lifestyle due to telework（Unit: ％）500
Government
1-4
5-29
30-99
100-499
employees office / Public
employees employees employees employees
and above agency

Company size
New plans or preparations for future Decrease
work duties or business
Increase

11

10

14

14

16

17

5

9

10

10

10

10

Ease of daily work (routine work
such as office work, contacting
clients, etc., creating reports)

Decrease

10

13

18

17

20

17

Increase

3

6

6

8

10

7

Coming up with new or creative
ideas

Decrease

9

11

16

14

15

14

Increase

6

7

6

7

8

7

Ease of communication withcolleagues and people outside thecompany

Decrease

17

23

27

27

36

31

Increase

2

4

5

4

4

3

Giving or receiving work-related
advice, consultation, guidance

Decrease

Sense of cohesion or unity as acompany / organization

Decrease

11
3
12
3

17
4
17
4

22
5
23
5

22
6
21
5

30
5
28
4

27
5
24
4

Self-improvement, professional
Decreasedevelopment, improvement of skills,
for example study to acquire a
Increasequalification

10

11

16

14

16

13

5

7

8

8

10

10

Decrease

12
3
15
11
13

17
4
18
14
18

15
4
18
17
17

16
5
18
23
18

13
3
14
17
16

Increase
Increase

Ease of management andadjustment of working hours

Decrease

11
2
12
8
11

Increase

7

10

11

12

17

9

Time when you are not doing
anything in particular while working

Decrease

9

12

16

14

14

12

Increase

Increase

13
8
8
10
7
8
14

13
10
8
12
9
9
18

13
13
11
15
10
12
18

15
12
13
14
11
11
18

19
10
15
15
13
10
25

16
10
10
10
11
8
17

Decrease

16

16

18

16

17

13

Increase

5

7

8

8

10

6

Results-based evaluation
Working in a relaxed environment

Increase
Decrease
Increase

Feeling of loneliness or alienation at Decrease
work
Increase
Health management / Mental healthCommunication with family
Hobbies, social activities, volunteer
activities

Decrease
Increase
Decrease(Note) The figures above show the percentage of survey respondents indicating that the items in the left column
had decreased (or increased), by company size.

The utilization of telework is only the prelude to full-scale digitalization. Here, we willconsider the digitalization of firms. Our survey also asked about the status of introduction of
information and communication technology (ICT) tools at workers’ places of employment.
Specifically, questions concerned the introduction of videoconferencing, communication tools,
data sharing software, attendance management tools, ICT tools for office procedures,

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
15
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020accounting, human resources, and sales operations, and systems such as robotic process
automation (RPA) and virtual offices. Figure 11 shows the status of introduction of these tools
and systems by the size of the firm. While 49% of large firms have introduced at least sometools, the figure is limited to 20-30％ in the case of small firms with 99 employees or less. Thisis only around half the percentage for large firms. We can see that there were disparities
between different firm sizes with regard to the introduction of digital tools even before the
COVID-19 pandemic.
The current pandemic might spur rapid digitalization across the board (not restricted
to the utilization of telework), in particular in large firms. Firms that are not able to introduce
digital technologies might suffer declining profits and an increased risk of bankruptcy. It is
possible that the digitalization gap will further expand between firms that are able to respondto digitalization and those that are not.

Figure 11 Introduction of ICT tools by firm size

1-4 employees

225-29 employees

212630-99 employees
100-499 employees

35

500 employees and above

49

Government office / Public agency

29
0

20

40

(n=10,904)

60

(%)

(Note) Percentage of workers who indicated that their firm had introduced at least one ICT tool of the typeindicated in the questionnaire.

Labor Adjustment in the wake of New Technologies and the COVID-19
Pandemic
The phenomenon that labor is replaced by the appearance of new technologies andpeople lose their jobs is often observed at historical turning points. For example, coachmen
were replaced by the advent of the automobile, and telephone operators were replaced by theautomation of telephones. Additionally, the widespread use of word processors did away withtypist positions, and more recently, the automation of ticket gates at train stations did away
Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
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presented here.

NIRA OPINION PAPER
No.53 | September 2020

with ticket-punching staff. Checkouts at supermarkets and convenience stores are becoming
automated, and it is likely that there will eventually be no more cashiers.
Looking back at history, there is nothing new in job loss as a result of the advent of newtechnologies. Up to the present, this effect was limited to only certain occupations, andsubstitution proceeded gradually and the duties of staff members were adjusted accordingly.
However, it is predicted that with the progress of digitalization, the effect will be morewidespread, and many occupations will disappear.
Professors Carl Benedikt Frey and Michael Osborne of Oxford University have listed
the occupations that will disappear as a result of the spread of AI in the future. This list
features occupations such as taxi driver and cashier as representative occupations with a highpossibility of being eliminated. The evolution of AI will see it spread rapidly through society
as a whole, and this will have an enormous impact. However, because it is not possible forworkers to make a smooth transition to new industries, time will be required for laboradjustment.

Response to COVID-19
The COVID-19 pandemic has come as an additional factor to the economic recession
produced by the wave of technological innovation due to the evolution of AI, and will no doubt
result in dramatic changes and a widening of disparities. It is necessary for us to bear in mind
that the effect of the COVID-19 pandemic is not a typical economic recession.
Looking at the labor side, the labor supply is actually declining as a result of businesses
and workers refraining from economic activities due to the pandemic. At the same time,
demand for labor is in a downturn, in particular in the face-to-face service industries. Factors
such as changes in income and employment differ significantly depending on differences inindustry, occupation, and firm size. In addition to this, the development of a digital economy
centering on telework and AI will cause jobs to disappear or employment to be severely
restricted (in particular in the case of routine work, as indicated above) and labor will be
replaced by AI and other digital technologies. The rapid advancement of this process as aresult of the pandemic can be expected to cause severe social problems in the future, including
large-scale unemployment, in particular among the lower-income brackets, and a widening ofincome disparities.
By contrast, looking at the production side, large firms that have actively invested in
and responded effectively to digitalization will steadily increase their productivity even in theface of the pandemic. Such firms will no doubt reap considerable benefits from globalization,
given that their utilization of digital technologies will enable them to advance theirinternationalization, for example in making use of overseas human resources, thus expanding
their profits. This can be expected to further widen disparities between large firms and microenterprises unable to ride the wave of digitalization.
What became clear from our survey is that the COVID-19 pandemic creates a negative

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This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

NIRA OPINION PAPER
No.53 | September 2020

cycle of income disparity and digital disparity. With this in mind, the policies that we should
discuss in the future will be considered here from the short-term, medium-term, and longterm perspectives below.
In the short term, it will be important to provide generous subsidies to industries andoccupations that have experienced a significant decline in income due to the pandemic. In the
midst of widening income disparities as a result of globalization, a wave of technologicalinnovation driven by COVID-19 has arrived, tending to further widen disparities due to thedigital economy. Income gaps could result in disparities in health and children’s education,
leading to the collapse of society as a whole. Given this, the correction of economic disparities
is an urgent task, and it will be important to provide income support, in addition to support
for digitalization, to specific industries, small enterprises, and workers in lower-income
brackets.
Eliminating the COVID-19 virus will be important from the medium-term perspective.
Subsidies are not inexhaustible. Additionally, it will not be possible to eliminate COVID-19
without implementing strong regulations such as urging businesses to restrain or suspend
their activities. For this reason, in order to enable adaptation to “life with COVID-19,” it will
be necessary to increase the durability and flexibility of the labor market and maintainemployment by promoting policies that increase the speed of labor adjustment andencouraging workers to take second jobs.
In the long-term, the issues will be how to promote economic revival and the “AI-ization”
and digitalization of the economy, and how to correct economic disparities. Today, as
disparities expand, there are serious problems in relation to supplying public funds by meansof a highly regressive consumption tax increase. Rather, the government should emphasize
the introduction of a universal basic income that would provide citizens with the minimum
income necessary for their lives, in addition to the reduction of the consumption tax, in orderto reduce economic disparities. Alternatively, another potential scheme would be theintroduction of robot or AI taxes in order to supply public funds.
In the future we will face extremely serious issues: How to control government debt
following large-scale expenditures of public funds, whether to respond to budget deficits byincreasing taxes, and whether to aim for economic growth by accelerating the introduction of
the digital economy.

Toshihiro Okubo
Toshihiro Okubo is a Professor in the Faculty of Economics, Keio University, and a Senior
Adjunct Fellow of the Nippon Institute for Research Advancement (NIRA). He completed
his Master’s degree program at the University of Michigan, and his Ph.D. (in international
relations and economics) at the University of Geneva and the Graduate Institute, Geneva.
He specializes in international economics and spatial economics.

Copyright Ⓒ 2020 by Nippon Institute for Research Advancement
18
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.