Income Inequality in Japan: What is the Appropriate Policy Response?

Author Name INOUE Seiichiro (Senior Fellow, RIETI)
Creation Date/NO. June 2020 20-P-016
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The Japanese economy stagnated and caused a rapid increase in irregular workers during "the Lost Two Decades" which followed the burst of the bubble economy in the early 1990's. The mass media repeatedly reported that Japan's income inequality was widening partly because of an increase in irregular workers. Such reports seem to have been adopted as fact by most Japanese people. Yet, is it true? How has Japan's income inequality changed since the 1980s?

This paper investigates the dynamics of income inequality in Japan by conducting a survey on preceding studies on income inequality. It also refers to the important literature on political philosophy, focusing on income redistribution. Based on this investigation and reference, the paper discusses what the appropriate policy responses to a change in income inequality should be. The conclusion has two main points:

Firstly, the social security and tax system redistributes income effectively in Japan. The level of disposable income inequality in Japan as a whole increased to some extent from the 1980's and then it almost flattened after the 2000's. However, decomposing the level of disposable income inequality by age group shows different movements: The level of disposable income inequality within the young and middle-aged populations increased, while that within the elderly population decreased.

Secondly, one of the policy responses required for addressing the trends in income inequality is to promote democratic debate on strengthening redistribution of income through the social security and tax systems. Based on the current situation where income inequality increased among young and middle-aged populations, it is important to urgently mitigate the inequality of market income before taxes and transfers by promoting human capital accumulation by irregular workers and job seekers in the young and middle aged populations. The Japanese government should innovate the system of recurrent education and other training programs in collaboration with industries and universities. In particular, it should consider the mandatory introduction of "Learning and Training leaves," which is a requirement that all firms allow both regular and irregular employees to take leave for recurrent education and other training programs.