AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies
IIPS

RIPSInstitute for International

The Japan Institute ofResearch Institute for

Policy Studies

International Affairs

Peace and Security

Editorial Advisory Board:

No. 215

Akio Watanabe (Chair)
Masashi Nishihara
Yoshiji Nogami
Taizo Yakushiji

07 July 2015

Editorial Committee:
Taizo Yakushiji
Hisayoshi Ina
Tsutomu Kikuchi
Shujiro Urata andToshiro Iijima

THE NEGATIVE EFFECTS OFDISPARITIES ON ECONOMIC GROWTH

Toshiaki Tachibanaki

Editor & Online Publisher:
Yoshji Nogami
President, JIIA・ Japan is no longer a country of equality.
・ Japan as a poor rich country.
・ Disparities have negative effects on economicgrowth.

The views expressed in this piece are the author’s own and should
not be attributed to The Association of Japanese Institutes ofStrategic Studies.

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

Japan has long been thought a country of equality with no significant
disparities in wealth and few people suffering from poverty. Arising in the 1980s,
this myth has since been dispelled, and disparities in wealth have expanded as
the number of impoverished citizens has risen.
According to OECD statistics, Japan’s relative poverty rate isapproximately 16%, placing it second only to the US among developed countries
and rightfully earning it the designation of poor rich country. The relative poverty
rate shows what percentage of a country’s population suffers from poverty by
essentially lining people up from low income to high income and defining as
impoverished those persons whose income is less than 50% that of the personright in the middle of the ranking (the median income figure). Since national
measurements are made using a common definition, this figure is a very reliablemeans of drawing international comparisons (the EU uses a threshold of 60%
instead of 50%).
The fact that more than two million people now receive welfare, a figure
on par with the number of destitute citizens in the immediate post-WWII era,
further bolsters the case for Japan as a poor rich country and speaks to theseriousness of the problem.
Disparities can be discussed from three perspectives. The first, asillustrated in Thomas Piketty’s “Capital in the Twenty-First Century,” is how manyrich people there are, the second is whether the disparity between high-andlow-income earners has grown, and the third is how many indigent people thereare. Japan is an unequal society from the second and third perspectives.
Why has the number of poor increased in Japan? One reason is that weare in an era of low growth. A second is that there has been a rise in the numberof part-time and temporary workers who enjoy fewer benefits than full-timeworkers. A third is that Japan’s social security system is still immature, and afourth is that the minimum wage is low. Several policy recommendations areproposed. One is to reduce the difference between full-time workers and non
full-time workers with respect to their hourly wages, and the other is to increase
the minimum wage amount.

http://www.jiia.or.jp/en/commentary2

AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies

Prime Minister Abe has announced a variety of economic measures inattempting to achieve a viable economy, but a high economic growth rate is notpossible until inequality is rectified. The OECD has studied circumstances indeveloped countries and demonstrated that a widening income gap lowers theeconomic growth rate, and thus Japan’s growth strategy cannot succeed as longas this disparity remains uncorrected. Japan needs to take steps to close theincome gap.
The most significantly adverse effect of this expansion in inequality forJapan is that children brought up in low-income or poor households are unable
to receive they education they desire. A gap emerges between these children
and children of affluent parents in university enrollment rates, and statistics
clearly show low university enrollment rates among children from low-income
households.
The inability of these children to receive university educations undermines
equality of opportunity in Japan. Many go on to take low-paying jobs when they
become adults, resulting in an intergenerational transfer of subnormal earning orpoverty. An unequal society creates inequality of opportunity spanninggenerations. One policy instrument is to increase educational expenditures by
the government in order to help households who have to pay large amounts ofeducational expenditures currently.
The decisions (and essentially the value judgments) that people makewith regard to the disparate outcomes of income gaps are a manifestation ofnational character. The value judgements that the Japanese people are making
thus merit further research.

Dr. TACHIBANAKI Toshiaki is a Visiting Professor, Kyoto Women’s University andProfessor Emeritus, Kyoto University. Among his authored works are The New
Paradox for Japanese Women: Greater Choice, Greater Inequality, International
House of Japan (2010) and Confronting Income Inequality in Japan: A
Comparative Analysis of Causes, Consequences, and Reform, The MIT Press(2009).

http://www.jiia.or.jp/en/commentary3