Since the development of the ‘income inequality hypothesis’, brought to broad attention by the publication of Richard Wilkinson and Kate Pickett’s book “The Spirit Level” (2009), Japan has commonly been held up as an exemplar of the benefits of low income inequality for health and social wellbeing. In contrast, the UK has been represented as an example of the high rates of social problems and poor population health that result from greater income inequality.
The ‘income inequality hypothesis’ has been the subject of intense scrutiny in academic journals for several decades and, following the public and political prominence of “The Spirit Level”, in the UK media and in reports from right of centre think tanks. Less well known in the UK, are the increasing concerns of some Japanese researchers that Japan is no longer the exemplar of income equality it is now often perceived to be.
The common self-perception among the Japanese of their country as an egalitarian ‘90 per cent middle-class society’ was first strongly challenged by Japanese economist Toshiaki Tachibanaki’s book “Confronting Income Inequality” published in Japan in 1998. Since then analysis by Japanese researchers has focussed attention on the problems of poverty in Japan. More recent data from different sources has produced markedly varied pictures of the degree of income inequality in Japan. Data presented in ‘”The Spirit Level” (2009) from the United Nations Development Programme Human Development Indicators suggests that Japan has the lowest levels of income inequality out of the group of the 21 rich countries compared. However, OECD figures published in 2011 have suggested that Japan has higher than average income inequality compared to other OECD countries.
The UK has relatively high levels of income inequality compared to other developed countries in recent data regardless of source.
A newly published paper, by Dimitris Ballas and colleagues Danny Dorling, Tomoki Nakaya, Kazumasa Hanaoka and Helena Tunstall, has analysed patterns of income inequality in Japan and the UK to try to establish a better picture of patterns and trends in income distribution within these two countries.
A key point about income microdata in Japan is that there is not much of it. Japan has just two surveys with suitable income data for calculating income inequality. The National Survey of Family Income and Expenditure (NSFIE) has been used by the World Bank in its income inequality figures. The other available survey, The Comprehensive Survey of Living Conditions (CSLC), was the data source for income figures in Tachibanaki (1998) and the more recent work of the OECD.
Differences between these surveys may be the first major factor underlying conflicting estimates of income inequality in Japan. It has been suggested that the CLSC may over-sample low income households while the proportion in NSFIE may be relatively small in comparison with other nationally representative data collected by the Statistics Bureau of Japan. We used the NSFIE as this was available over a longer period for years that were more suitable for comparison with available UK data.
The UK is fortunate to have a broad range of social surveys containing individual and household income data. We selected UK income data from the Family Resources Survey (FRS) and Households Below Average Income (HBAI) survey for use in our study.
We calculated two forms of inequality: mean and median income ratios. The median quintile ratio is the median income of the richest 20 per cent of the population divided by the median income of the poorest 20 per cent and is used in the analyses of HBAI data sets conducted by the Department for Work and Pensions in the UK. The mean quintile ratio is the mean income of the richest 20 per cent of the population divided by the mean income of the poorest 20 per cent and is the measure presented in “The Spirit Level”.
The results of our analysis of gross income find that in the three years for which we had comparative data, 1994, 1999 and 2004, the median quintile ratios in Japan were 3.85, 4.08 and 3.99 respectively, while in the UK the equivalent figures were 5.09, 5.23 and 4.99. The mean quintiles ratios in Japan were 4.56, 4.74 and 4.67 and in the UK were 6.65, 7.13 and 6.93 respectively.
So, in our data in all years both median and mean quintile ratios indicated significantly higher income inequality in UK than Japan. There was no clear time trend in income inequality in either country with ratios in both countries greatest in the mid time period 1999. The difference in degree of income inequality between Japan and UK was larger in the mean than median quintile ratios.
Understanding which measure of inequality has been used in international comparisons of income inequality is crucial as it is likely to be the second major source of discrepancy between estimates of income inequality in Japan from different sources. The reasons for this are indicated by analysis we completed of gross income distributions in Japan and UK across the full range of incomes. This found that compared to the UK, Japan actually has greater proportions of its population in the very lowest household income bands. This supports recent concern regarding poverty in Japan. However, we also found the proportions of the Japanese population in high income households, especially at the very highest levels of income are lower than those in UK. These results are consistent with previous research suggesting the share of total income held by the top groups is much lower in Japan than the UK and USA.
The relatively low levels of income among the highest income groups in Japan will have a greater impact on its mean than median top quintile figures and different implications again for figures based on the Gini coefficient. Recent international comparisons published by the OECD in 2011 suggesting relatively high levels of income inequality in Japan, unlike our study, used income data from CSLC and the Gini coefficient to measure income inequality. The Gini coefficient is likely to be less sensitive to the unusual income patterns among the highest income groups in Japan than either the mean or median income quintile ratios, which are both based on comparisons of the highest and lowest income quintiles only.
The limitations of available income data mean that disagreements about the measurement of income inequality are likely to continue to contribute to controversy regarding inequality in Japan, UK and beyond. But, this analysis provides further evidence that Japan is an exemplar of a particular type of income distribution, it is a country with considerable poverty but in which higher incomes have been checked to an unusual degree. These results reaffirm the significance of Japan to debates about the income inequality hypothesis and emphasise the importance of assessing the potential social harms resulting from very high incomes.
Author Helena Tunstall