Japan’s middle class is ‘disappearing’ as poverty rises, warns economist

04-Jul-2020 Intellasia | CNBC | 6:02 AM Print This Post

As poverty rises in Japan, the country’s middle class is slowly eroding away, according to a recent report by Oxford Economics’ Shigeto Nagai.

“After the bubble burst in the 1990s, income has declined across the income percentiles, and the share of low-income households has risen as those of middle and high-income groups shrink,” Nagai, who is head of Japan economics at the firm, wrote in the report.

The ten years starting from the early 1990s have often been referred to as Japan’s “Lost Decade.” The period was marked by economic stagnation and deflation following a boom in the prior years.

“Although it’s true that inequality hasn’t widened and income isn’t concentrated in the top tiers, the share of low-income households has been rising at the expense of middle-income groups in a process of secular income decline across percentiles,” the economist said.

Japan’s poverty rate stands at 15.7%, according to the latest figures from the Organisation for Economic Cooperation and Development. That metric refers to people whose household income is less than half of the median of the entire population.

“The middle class is disappearing in Japan, albeit gradually,” Nagai warned.

Japan’s ‘life-time employment system’

A “major driving force” determining the income distribution has been its “life-time employment system,” Nagai told CNBC. It has been around for decades and was established during the country’s high growth period in the 1950s and 60s, he said, when there was a “very serious shortage of labour.”

The system is mainly practiced by relatively established companies and has three pillars, according to the economist:

* The “implicit guarantee” to take care of employees until retirement

* Wages that are dictated by seniority

* Company-based labour unions

In this relatively stable but rigid employment system, wages rise only gradually. Companies also place heavier emphasis on job security rather than compensating for short-term improvement in company performance or productivity, Nagai said.



Category: Japan

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