0. Poverty and Inequality in Japan
7th Global NTA Meeting:
Population Aging and the Generational Economy
June 11-12, 2010
Poverty and Inequality in Japan
Fumio Ohtake (Osaka University)

1. Backgrounds of Research (1) : Public attention to Income Gap
Background of Research: Public Attention to
Income Gap and Poverty
Backgrounds of Research (1) : Public attention to Income Gap
(1) in a governmental survey, a rising percentage of people report the perception of economic inequality;
(２) the widening income gap in society was debated in the Diet in 2006.
(3) Japanese government published the poverty rate in 2009
From the year 2005 through 2006, expansion of the income gap received large public attention in Japan. Some of the Japanese best sellers in 2005 addressed Gap-widening society.
The issue of gap in society was also debated in the Diet in The debates stemmed from not only political backgrounds, including the argument about a series of recent structural reforms (Koizumi-reform) or the presidential election of a ruling party, but also the rising perception of economic inequality among Japanese.
In fact, according to the results of National Survey on Lifestyle Preferences (conducted by the Cabinet Office, Government of Japan) since the 1980’s, an increasing percentage of people thought that their preference for low inequality of income and property has been almost unsatisfied. The percentage reached a quarter of the whole in the 2005 survey.

2. Figure 1: Perception of Economic Inequality
National Survey on Lifestyle Preferences（Cabinet Office）

3. Objectives of Research
Facts on income inequality in Japan based on the time series of the Gini coefficient
Reasons for the changes in Japan’s income inequality
Change of Poverty Rate by Age groups
The object of research is as follows.
First, I describe the facts on income inequality in Japan based on the time series of the Gini coefficients.
Second, I discuss the reasons for the changes in Japan’s income inequality. We focus on the aging of population in Japan.
Third, I will examine the change of poverty rate by age group.

4. Figure 2. Income Inequality in Japan: the Gini Coefficients from Various Data
The inequality in Japan’s household income is becoming more prevalent. Figure 1 shows the trend in Japan’s household income inequality over the past three decades based on three different sources of data for pre-tax income measured by the Gini coefficient. Although all three sources indicate that the income inequality has been increasing since around 1980, the specific figures related to income inequality are different for each data source.

5. Figure 3. Changes of Share of Households by Number of Household Member
When we analyze the historical change of household income inequality, we have to care the change of the distribution of household size. The distribution of household size has substantially changed in Japan, as shown in Figure 3. The percentage of single-member households increased from 18% in 1980 to 24% in In the same period, the average number of household members decreased from 3.2 to The percentage of households with one or two members increased from 34% in 1980 to 53% in 2005.

6. Figure 4: Gini Coefficient: Household Income
In order to adjust the effects of change of household size, we calculate Gini coefficients using equivalent scale from NSFIE. The results are shown in Figure 4. Again, we observe the increase of the income inequality.

7. Figure 5. The Gini Coefficients of Before-tax Income by Age of Household Heads
Figure 5 shows the income inequality by age group of household heads. This Figure shows that the inequality within the age group were relatively stable in the past. The income inequality in Japan has been greater within the older group. This life-long gap starts widening around the age of forty, when the speed of job promotions begins to differ among employees.
Figure 5 also shows that within age groups, income inequality increased from 1994 to 2004 especially within the age groups under age thirty-nine. This recent change was affected by the rapid increase of part-time workers among young generation and the unemployed in their seriously bleak employment situation.
Equivalent Scaled Income

8. Figure 6. Age Distribution of Household Heads
Changes in the age distribution of the household heads are shown in Figure 6. In 1984, the mode of distribution for the age of household heads was late thirties. The mode moved to late fifties in 2004, due to the aging of the population. The aging population in Japan has thus enlarged the groups with wider income gaps and raised the overall inequality.

9. Figure 7. Gini Coefficient of Household Consumption by Age group
Figure 7 shows the Gini coefficient of consumption by age group. Age-inequality profile has become flatter recently. Inequality among young has been increased although inequality among old has been decreased.

10. Figure 8. Gini Coefficient: Personal Income
Figure 8 show the change of Gini coefficient of individual income. We assign the same equivalent scaled income to every household members in the same household. Then we calculated the inequality measure on individual base. Again the inequality has increased two decades.

11. Are the elderly the economically disadvantaged people? (1)
The public pension system, the health insurance system, the long-term care insurance system solve the problem of elderly people's poverty
The livelihood protection system
The elderly people have a higher poverty rate than any other age group
The average living standard of the elderly is not always low
The average amount of financial assets held by age bracket is the largest among the aged.
The public pension system, the health insurance system, the long-term care insurance system solve the problem of elderly people's poverty
The livelihood protection system
It is true that the elderly people have a higher poverty rate than any other age group
It is also true that the average living standard of the elderly is not always low and that the average amount of financial assets held by age bracket is the largest among the aged.

12. Are the elderly the economically disadvantaged people? (2)
The income distribution in Japan: the level of income inequality of elderly people is higher than that of other age groups.
The poverty rate of the elderly has not risen in the 2000s.
The poverty rate increased in age groups of late 20s, 30s and under 5 .
The number of elderly people has increased itself and thus the ratio of the aged to poor people is on the rise.
The income distribution in Japan: the level of income inequality of elderly people is higher than that of other age groups.
The poverty rate of the elderly has not risen in the 2000s.
Instead, the age groups having an increasing poverty rate are those in their late 20s, those in their 30s and those under 5.
The number of elderly people has increased itself as a result of changing population structures, and thus the ratio of the aged to poor people is on the rise.

13. Poverty of elderly people seen from the receipt of public assistance
Fig. 9. Number of households receiving public assistance by household category
Figure 9 shows the trend of the number of households receiving public assistance by household category. Before 1990, households having people with disabilities or sick people were the largest receivers and households of elderly people came second.

14. Fig. 10: Ratio of households receiving public assistance by household category
But in the 1990s, the households of the elderly receiving public assistance increased rapidly and began to have the largest part in the families going on relief (Fig. 10). If we define welfare recipients as poor people, poor households are now the households of elderly people mainly. Is the reason for increasing households of the elderly receiving public assistance the fact that elderly people became poorer or that the number of the elderly increased?

15. Figure11: Ratio of Households Receiving Public Assistance By Household Type
Figure 11 shows the ratio of households receiving public assistance to the population of different household categories. The household category with the highest ratio of receiving public assistance is fatherless households, followed by the households of elderly people. It is true that the ratio of receiving public assistance has been rising a little among the households of the elderly since the mid-1990s, but the ratio has remained at about 5% since 1990, which is lower than the level before This means that the ratio of households of elderly people showed a rapid rise in the households going on relief mostly because households of the elderly increased themselves as a result of population aging.

16. Income and consumption of elderly people
The average before-tax real income per person "National Survey of Family Income and Expenditure“
\3.30 million in 1984
\3.85 million in 1989
\4.23 million in 1994
\4.04 million in 1999
\3.91 million in 2004.
According to the special aggregation based on the "National Survey of Family Income and Expenditure" by Kohara and Ohtake (2009), the average before-tax income per person adjusted by the consumer price index increased from \3.30 million in 1984 to \3.85 million in 1989 and \4.23 million in 1994 and then decreased to \4.04 million in 1999 and \3.91 million in 2004.

17. Figure 12: Change of the Average Before-Tax Income by Age group
How did before-tax income by age group change? Figure 12 shows real before-tax income by age group. First, the age groups having high per person income are the and age brackets, and this situation did not change vary greatly from 1984 to The age groups with low average income are those under 15 years, the age bracket and those from 60 years up.
The age groups having high average income are the age bracket where the heads of households have a high average income and the group of their children. Per person income considerably decreases among those 30 years and over who have a high ratio of becoming independent of their parents either alone or after getting married. The average income increases with age, and those from 45 years up move into the group with high per person income. Falls in average income are very sharp (about 20%) among those in their early twenties to early thirties. This is roughly equal to the decrease in income (about 26%) from the late fifties when the average income reaches a peak to the late sixties when it is minimized.

18. Figure 13: Change of the Average Disposable Income bye Age Group
This situation becomes clearer when we look at the tendency of social insurance premiums and after-tax disposable income. Figure 13 shows the trend of per person real disposable income by age group. From 1984 to 2004, mainly as a result of increased social insurance premiums, the disposable income of working generations relatively decreased as compared with elderly generations. Because of this, falls in disposable income from the early twenties to early thirties increased from about 17% in 1984 to about 17% in By contrast, decreases in disposable income from the late fifties to late sixties reduced from about 24% in 1984 to about 18% in 2004.

19. Fig. 14: Trend of the average real consumption expenditure by age group
However, it is impossible to measure the difference in living standard among age brackets completely from disposable income. Elderly people have a larger stock of assets than young people on average and thus may achieve a high living standard even if their yearly disposable income is low. To check this fact, we showed the average values by age group of consumption in Figure14.
This figure tells us that the decrease ratio of consumption of the elderly has fallen recently more than as shown in Figure 5 where disposable income is used. As of 1984, the amount of consumption of those in their thirties and those 65 years and over, who are among the age brackets whose amount of consumption decreases, was on the same level of about \140,000. But the consumption of elderly people has been greater in more recent years.
In 2004, while the consumption of those in their thirties was about \150,000, that of those in their late sixties, about \180,000. The decrease rate of the average consumption of those in their early twenties to those in their early thirties was about 18% in 1984 but rose to 21% by On the other hand, the decrease rate of consumption of those in their fifties to those in their sixties dropped from about 24% in 1984 to about 14% in 2004.

20. Fig. 15: Trend of the average real consumption expenditure for non-durable consumer goods
Figure 15 shows the average expenditure for non-durable consumer goods by age group. In 1984, the age brackets having the least average expenditure were children under ten, their parents in their thirties and the elderly from 60 years up. In 2004, because the average consumption level of elderly people climbed, these age bracket having the least average expenditure were only children under ten and their parents in their thirties.

21. Fig. 16: Trend of real financial assets held by age group
Behind this is the fact that as shown in Figure 16, the elderly's store of financial assets grew greater.

22. Fig. 17: Gini Coefficient: Personal Before-Tax Income by Age Group
Figure 17 shows the Gini coefficient calculated from individual income. We observe that the inequality increased among the age between 25 and 39.

23. Fig. 18: Gini Coefficient: Personal Consumption by Age Group
Consumption inequality has increased among age of less than 20 and the 30s and 40s.

24. Fig. 19: Gini Coefficient: Financial Asset
The similar change is observed for the inequality of financial asset.

25. Fig. 20: Poverty Rate: NSFIE
First, Figures 20 and 21 show the trend of poverty rates using the personal income (consumption) calculated by the per person income (consumption) based on the concept of equivalent income (consumption). Figure 20 is the result calculated using the data of the "National Survey of Family Income and Expenditure" and Figure 21, that of the "Survey on Income Distribution."
Figures 20 and 21 indicate that the poverty rate is calculated higher when it is defined by income, e.g., before-tax income or disposable income, than when it is defined by consumption expenditure. This means that because people deal with an income shock by equalizing their consumption by withdrawing savings or borrowing money, the poverty rate becomes lower if it is calculated based on consumption than based on income. But the poverty rate obtained from the "National Survey of Family Income and Expenditure" differs from that calculated using the "Survey on Income Distribution." While the figure calculated using the income data of the "National Survey of Family Income and Expenditure" has been about 8%, that obtained from the "Survey on Income Distribution" increased from about 11% in 1987 to about 15% in On the other hand, there is no big difference between the results from the two data sources: the poverty rate defined by consumption expenditure ranges from 5% to 6% for the "National Survey of Family Income and Expenditure" and 4-6% for the "Survey on Income Distribution."

26. Fig. 21: Poverty Rate: IRS

27. Fig. 22: Poverty Rate from the Disposable Income by Age Group: NSFIE
Let's examine the poverty rate by age group. The trend of the poverty rate by age group defined by disposable income obtained from the "National Survey of Family Income and Expenditure" differs greatly from that calculated using the "Survey on Income Redistribution." The age groups having high poverty rates in terms of disposable income are elderly people 65 years and over, those in their late twenties to early thirties, and those under ten. Especially noteworthy is the fact that the poverty rate of the elderly greatly lowered from 1984 to 1989 and that in the mid-1990s and after, the poverty rate rose among those in their late twenties to early thirties and those under ten. The rise in the poverty rate of children under 5 is especially characteristic. In the "Survey on Income Distribution," the poverty rate of elderly people has not changed greatly since 1987, while in the latter half of the 1990s, increases in the poverty rate were observed among those under 20.

28. Fig. 23: Poverty Rate from Disposable Income by Age Group: SIR

29. Fig. 24: Poverty Rates from Consumption by Age Group: NSFIE
The calculation of the poverty rate using disposable income may not show the poverty situation of the elderly having relatively great assets very appropriately. Let's examine here the poverty rate by age group calculated using consumption expenditure. There were considerable differences between the poverty rates obtained from the two statistics. But the trends of the poverty rate defined by consumption expenditure measured using the two statistics agree with each other (Figs. 24, 25). The poverty rate calculated using the consumption expenditure data of the two statistics was high among the age bracket and those under ten during the period from the end of the 1990s to the 2000s.
Income statistics are greatly affected by changes in occasional income. In particular, information at the end of distribution, such as the poverty rate, is liable to be influenced by income changes if the statistics have a small number of samples. By contrast, consumption expenditure is never zero by nature and has also a lower fluctuation margin than income from the viewpoint of the permanent income hypothesis. In particular, elderly people have great assets in some cases, and it is doubtful whether the poverty rate defined by income shows the ratio of those actually in poor conditions. In this sense, we should pay attention to the trend of poverty rates measured by consumption expenditure, and it is found that the measured results have less difference according to the statistics used.

30. Fig. 25: Poverty Rates from Consumption by Age Group: SIR
It is supposed that the poverty rate of the elderly measured by consumption expenditure lowered from the mid-1980s to the late-1980s, remained roughly stable up to 2002 and then fell in 2004 and after. On the other hand, the poverty rate of the age group and those under ten rose throughout the 1990s. As of 2004, the groups with the highest poverty rate were elderly people from 70 years up, those in their twenties and thirties, and those under ten. What is especially noteworthy is the fact that the poverty of children under five became more serious.
Behind rises in the poverty rate of those in their twenties and thirties are increasing non-regular workers and rising divorce rates. The rising poverty rates of these two generations mean that those not fully covered by public pensions will increase and that the poverty rate of the elderly will rise again when people in these generations get old in the future.

31. Fig. 26: Distribution of Poor People from Disposable Income: NSFIE
For the distribution of poverty by age group, it has been confirmed from statistics that the poverty rate began to rise in the late 1990s among those in their twenties and thirties and those under ten. How has the distribution of poor people by age group changed, then?
Figure 26 shows the distribution of poor people by age group. Despite the fact that the recent increase in poverty rate among child, the ratio of children among poor has decreased.

32. Fig. 27: Distribution of Poor People from Consumption by Age Group
For the distribution of poverty by age group, it has been confirmed from statistics that the poverty rate began to rise in the late 1990s among those in their twenties and thirties and those under ten. How has the distribution of poor people by age group changed, then?
Figure 26 shows the distribution of the poor by age bracket from 1984 to 2004 calculated using the consumption expenditure data of the "National Survey of Family Income and Expenditure." From the poverty rate by age group, a decreasing trend has been observed for elderly people, but the share of the elderly is increasing among poor people, which is the result of population aging. The ratio of elderly people 70 years and over to the poor is rising, while that of those under ten is on the decrease. It is true, seen from the distribution of poor people by age bracket, that those with a greater need for poverty measures are the elderly. But what is important in considering poverty programs is not the distribution of poor people by age group but the indicators of the poverty rate by age bracket. What affects people's behaviors is their individual probability for poverty, not the actual number of poor people in their generation.

33. Conclusion (1)
One characteristic in Japan is that due to a high labor participation rate of the elderly, there are large income gaps within the elderly group.
Elderly people in Japan are also characterized by the fact that they have a large amount of financial assets on average.
Their poverty rate has lowered since the mid-1980s but is still higher than that of other age groups.
The fact that the poverty rate of those under ten is increasing, for example, is probably the result of the fact that the poverty rate of their parents is rising. It is highly likely that the increasing poverty rate of parents has raised the poverty rate of their children and has lowered birth rates at the same time. But even if the poverty rate of children increases as a result of lowering birth rates, it is equally possible that dropping birth rates cause the number of poor children itself to decrease. If we suppose that we can form policies for poverty for each age group on the basis of the number of poor people, we will not regard the poverty problems of children whose population is decreasing as very important. On the other hand, while the ratio of elderly people to the poor is falling, the population of the elderly who are poor is actually increasing as a result of population aging. If we consider poverty measures for elderly people more important than those for children because the ratio of the elderly to the poor is rising, the result would be that only the poverty rate of elderly people falls while that of children does not decrease.
In the period when the birth rate drops and the population ages rapidly, it is highly likely that measures to fight poverty are greatly distorted if we disregard the indicators of the poverty rate for the same age bracket.

34. Conclusion (2)
Poverty rates in their twenties and thirties and those under ten increased recently.
Because changes in population structure have been large and the ratio of elderly people to the population has rapidly been increasing, the percentage of the elderly to the poor is on the rise.

35. Thank you