The following OECD assessment and recommendations summarise Chapter 4 of the Economic Survey of Japan 2006 published on 20 July 2006.
Addressing the rise in inequality and relative poverty requires measures to reduce labour market dualism…
Reform of the tax system should take into account its potential impact on income distribution, which has become more unequal for the working-age population in recent years. Indeed, the Gini coefficient measure has risen significantly since the mid 1980s from well below to slightly above the OECD average and the rate of relative poverty in Japan is now one of the highest in the OECD area. Population ageing is partly responsible for boosting inequality as it raises the proportion of the labour force in the 50 to 65 age group, which is characterised by greater wage variation. However, the key factor appears to be increasing dualism in the labour market. The proportion of non-regular workers has risen from 19% of employees a decade ago to over 30%. Part-time workers earn on average only 40% as much per hour as full-time workers, a gap which appears too large to be explained by productivity differences. Although the increase in non-regular workers has been partly caused by cyclical factors, there is a risk that labour market dualism will become entrenched, given that thus far only a small proportion of non-regular workers have become regular workers. One important key to reversing the rise in inequality and poverty is to reduce labour market dualism. This requires a comprehensive approach including reducing employment protection for regular workers and thereby weakening the incentives of firms to hire non-regular workers. In addition, it is important to increase the coverage of temporary workers by social insurance and to enhance the employment prospects of non-regular workers.
The share of non-regular workers is rising
As percentage of total employed persons
1. The significant fall in the number of part-time workers in 2002 and the rise in the other categories is thought to be due to a change in the questionnaire.
Source: Ministry of Internal Affairs and Communications.
… and increase the share of social spending on low-income households
The serious fiscal problem limits the scope for boosting social spending to reduce relative poverty. It is necessary, therefore, to reallocate social spending to increase the share received by low-income households, while taking care to limit the creation of poverty traps and work disincentives. About three-quarters of social spending is allocated to the elderly. More than half of single working parents were in relative poverty in 2000, compared with an OECD average of around 20%. Moreover, Japan had a higher poverty rate for single parents who work than for those who are not employed. In 2002, the government reformed the single parent allowance to provide work incentives. Significant poverty among single parents is a factor boosting the child poverty rate to 14% in 2000, well above the OECD average. Given the relatively high proportion of education costs borne by the private sector, it is essential to ensure that children in low-income households have adequate access to high-quality education to prevent poverty from being passed to future generations. The increasing stratification in educational outcomes in Japan found by the PISA study should be addressed.
Child poverty in Japan is above the OECD average
Per cent in poverty before and after taxes and transfers
Source: Whiteford and Adema (2006).
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assesment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Japan 2006 is available from:
For further information please contat the Japan Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Randall Jones, Tadashi Yokoyama and Taesik Yoon under the supervision of Willi Leibfritz.