Confronting Income Inequality in Japan: A Comparative Analysis of Causes, Consequences, and Reform
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Book Review Confronting Income Inequality in Japan: A Comparative Analysis of Causes, Consequences, and Reform Toshiaki Tachibanaki MIT Press: Cambridge, MA, USA, 2005, 240pp. Comparative Economic Studies (2007) 49, 473–475. doi:10.1057/palgrave.ces.8100205
This book seeks to demolish the widespread image of postwar Japanese society as being highly egalitarian in terms of income and wealth. It is often remarked that 90 per cent of the population identifies itself as middle class, that wage differentials between white-collar and blue-collar employees of the same firms are comparatively slight, and that Japan has sustained one of the lowest rates of unemployment among the industrialised nations. Toshiaki Tachibanaki allows that this egalitarian image may have been warranted toward the end of Japan’s high-speed growth in the early 1970s, but since then, he contends, Japan has experienced increasing inequality. Indeed, Japan’s Gini coefficient based on pre-tax income has risen from 0.354 in 1972 to 0.498 in 2002, and its Gini coefficient based upon taxed income from 0.314 to 0.381. According to Tachibanaki, the main causes of this slide into inequality are as follows: 1. The rising value of real assets, especially during the ‘bubble’ period of the 1980s, has been the biggest contributor to increased inequality of wealth. Although the bubble caused inequality to peak in 1987–1988, differences in landholding in particular have continued to produce higher levels of inequality than before. 2. Changes in tax policy have contributed to inequality. Before 1986, households in the highest income bracket paid a tax rate of 70 per cent, but by 1999 those in the top bracket paid only 37 per cent. Whereas the estate tax rate was once as high as 20 per cent, it has now fallen to 6.67 per cent, and formerly high taxes on income from interest and dividends were abolished in 1988 in favour of a flat 20 per cent tax rate that is levied separately from taxes on other forms of income. The consumption tax introduced in 1988 (now at 5 per cent) has had regressive effects on income, as well. Tachibanaki, who does not hide his preference for a highly egalitarian social order, blames these shifts in tax policy partly on the example of the Reagan and Thatcher governments.
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3. The proportion of part-time and temporary workers has increased to about 35 per cent of all employees. They do not receive the many fringe benefits enjoyed by regular employees. The effect on inequality is compounded by the fact that women, who constitute a comparatively high percentage of parttimers, are paid lower wages than men in the same type of employment. 4. The growth of the service industry and high-tech sectors has brought disproportionate rewards to the most skilled workers. Although wage differentials in the Japanese firm remain comparatively egalitarian, opinion surveys in the last 15 years reveal rising support for performance-based wages in preference to the seniority-based wages than have typified most medium
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