Is Inequality a Bad Thing? (3)

I have written about the economic gap twice before. Today I write about the inequality in Japan. Here is the excerpt from my favorite British economic magazine- The Economist:

The Economist Jun 15th 2006
The rising sun leaves some Japanese in the shade

.....Arch-conservatives and left-wingers alike blame the income gap not just on globalisation clobbering the unskilled, but on the structural reforms and deregulation championed by the prime minister, Junichiro Koizumi, and his Liberal Democratic Party (LDP).

.....With the income gap a big topic in the race to succeed Mr Koizumi as prime minister this September, it is worth taking a closer look. Statistical problems always guarantee that the income gap, in any country, is contested ground. Even so, no matter which data are used, the trend looks the same: income inequality in Japan has risen since the early 1980s.

....Toshiaki Tachibanaki, an economics professor at Kyoto University, puts Japan behind only the United States, Britain and Italy in income inequality among the big rich economies. It once boasted Scandinavian levels of equality.*

Yet a closer look at the reasons behind the rise in inequality reassures somewhat. Fumio Ohtake, at Osaka University, notes that income distribution by age of household head has remained constant.* ....Older people tend to have the widest income disparity, since while some people retire to live on modest pensions, more senior managers get hefty pay rises in the last years of their working life, with pensions afterwards to match. An ageing population therefore scores higher on overall measures of inequality.*

....［The income gap］ has grown among those under 30, according to a 2004 survey. This is probably due to an increase in the number of unemployed and those in part-time work. Between 1990 and 2005, the number of “non-regular” workers—ie, those on lower pay with neither full-time contracts nor benefits—rose from less than one-fifth to nearly one-third of the workforce, hitting the young (and working women) disproportionately. Labour flexibility did much to help Japanese companies escape from piles of debt over the past decade, and partly as a consequence they are now making record profits.

Take the taxi industry, for example, which has been opened up. Critics say there has been a fall in pay among drivers since deregulation, yet Mr Ohtake points out that the number of drivers has leapt, thereby reducing inequality. The rise in “non-regular” workers in Japan may in fact have narrowed the income gap, because the alternative was probably unemployment. But people do not see it that way.
*Bold letters by the author.

There are three points at issue:

(1) Is the income gap due to the structural reforms and deregulation led by Mr.Koizumi and his LDP?

It is very difficult to prove such a thing. Some economists say that the income inequality in Japan has risen since the early 1980s. If so, Mr. Koizumi and his policy is far less likely the culprit. Moreover others say that the income distribution by age of household head has remained constant. As Mr. Otake says, the increasing number of older people may have widen income disparity. According to that, widening income gap is a matter of course.

(2) Is the gap due to an increase in the number of unemployed and those in part-time work?

Between 1990 and 2005, the number of non-regular workers rose from less than one-fifth to nearly one-third of the workforce. This is more likely the culprit. In fact the wage gap between regular and non-regular workers is widening and causes to the educational gap between their children. This may be led by Mr. Koizumi's deregulation ― for example, opening up taxi industry has been the cause of a fall in pay among drivers. On the other hand, the increasing number of temps is said to lead to a fall in the unemployment. Which is higher, the benefit from a fall in jobless or the cost of the wage gap? I don't know that.

(3) Is the gap due to globalization?

In the world, this is more controversial issue than the above other 2 points. The income gap becomes larger due to the fierce competition between the national workers and the foreign workers. The national workers in developed countries like the U.S. and Japan are generally paid more than the developing countries' workers such as the Chinese and Brazilian. The manufacture factories are now being transformed to the developing countries and so are the jobs. As a result, some of national workers in developed countries are unemployed. It is, so-called, the problem of offshore outsourcing. This is, as a Harvard economist Gregory Mankiw remarks, a new type of international trade, which benefits many national people as well as many foreign people in developing countries. It is, however, very hard to say that the offshore outsourcing is the culprit of the income gap.