Why is poverty rising in Japan? There are lots of preconceptions about poverty.
On the right, a common idea is that poor people mainly have their own behavior to
blame, that if they worked more, committed less crime, gad fewer out of wedlock births
and did fewer drugs, the poverty rate would plummet. Meanwhile, many liberals blame
poverty on free-market policies that have weakened unions and eliminated the corporate-welfare state.
Both of these stories sound plausible, and both may be important factors.
But, when I look at Japan, I see plenty of evidence that neither individual behavior
nor free-market policy is the main reason for poverty. As in so many areas of economics,
Japan confounds our conventional wisdom. The stereotype of Japan as a low-poverty
country isn’t accurate. It’s true that japan had relatively few poor people and
was a very equal society as recently as the early 1980s. But since then, the poverty rate has risen
relentlessly. Now, a new UNICEF report informs is that on one key measure, child poverty, japan has
fallen behind the US. The reports looked at the gap between the income of the poorest Japanese
families with children and the average household income. On this measure, japan ranks 34th out
of 41 developed countries, a higher number indicate more child poverty. In comparison,
the US ranks 30th. This rising poverty level fits with all the other negative economic trends coming
out of Japan falling real wages, rising inequality and the rise of low-paid non-regular employment.
The question is, why is this happening? If the bad behaviour explanation for poverty is correct,
we would expect to see high crimes rates, a lot of unemployment and high rates of
things such as out-of-wedlock births and illegal drug use. But, we see none of those things. Japan
has very high labour force participation and low unemployment. No laziness or idleness here.
Japan’s crime rates are legendarily low, and have been falling even more in recent years. Single
parenthood is very rare in Japan only about 3% nationwide, compared with about 25% in the US.
And rates of illegal drug use, while they have risen recently, are much lower than in the US.
Japan is famous for its corporate welfare system, where job security is high and raises are based
on seniority. This system has declined in the years since the administration of former prime
minister Junichiro Koizumi ended a ban on the use of non-regular workers in manufacturing.
But much of the shift to low-paid, insecure jobs has happened without major changes in policy. In
particular, stringent government protections of regular workers have been kept in place. Japan
has also resisted becoming more open to trade and immigration. It ranks lower than most rich
countries on measures of trade openness, and is famously resistant to importing foreign labour.
What about unions? Labour union membership has declined steadily since the 1970s,
much as it has in other rich countries. But this probably hasn’t been driven by policy there have
been no major changes in Japanese law regarding unions, and labour disputes are exceedingly rare.
Japan’s labour-management relations, in fact, have always been far less confrontational than
in the US. So, if neither free-market policy nor individual behaviour is responsible for
Japan’s steadily climbing poverty rate, what is the cause? One possibility is low productivity.
Labour productivity has fallen along with wages, and total factor productivity (which
takes capital into account as well as labour) has stagnated. Another possibility is the impact of
trade competition. Even though Japan has remained more protectionist than most rich countries,
protection of domestic markets is no guarantee of success in international ones. More direct
competition from nations that make similar goods means smaller gains from trade,
so Japanese workers could be feeling the pinch despite the government’s protecting hand. This
might explain why Japan’s rich have been seeing continued income
gains even as the poor get poorer. But these reasons are speculative on my part.
What’s clear is that Japan defies our usual stories for the causes of poverty,
especially regarding the increase in the percentage of poor people since the 1980s. That
means that many of the poverty solutions being suggested on both the right and the left might be
of dubious efficacy. Here comes to the end of the video, if
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