Cablegate: Poverty, Inequality Trends Tap Economic Anxiety

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P 040749Z NOV 08
FM AMEMBASSY TOKYO
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RUEAUSA/DEPT OF HHS WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 TOKYO 003068

SENSITIVE
SIPDIS

STATE FOR EAP/J, EAP/EP
DOC FOR CENSUS BUREAU/INT'L PROGRAMS CENTER
DOL FOR ILAB/SHEPARD AND SPANGLER

E.O. 12958: N/A
TAGS: ELAB PGOV PHUM SOCI JA
SUBJECT: POVERTY, INEQUALITY TRENDS TAP ECONOMIC ANXIETY

REF: A. 08 TOKYO 2843
B. 06 TOKYO 7064
C. 06 TOKYO 5962

SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY.

1. (SBU) SUMMARY: Japan has the fourth-highest poverty
rate among the 30 OECD members, with poverty among the
elderly roughly 50 percent above the OECD average, according
to a report issued by the Organization for Economic
Cooperation and Development (OECD). However, according to a
Japanese expert, Dr. Aya Abe, while Japan's official
statistics understate poverty because of disincentives for
the unemployed to apply for government assistance,
income-based measures like the OECD's overstate Japan's
poverty rate. Dr. Abe believes more nuanced analysis is
needed for policy makers to address a long-term trend many
Japanese politicians and opinion leaders see of growing
income inequality in Japan. Nevertheless, with an uncertain
global economic outlook and Lower House elections looming,
the OECD report's unsettling news may exacerbate voters'
economic anxiety and add fuel to the debate over social
welfare as politicians position themselves for expected
elections. END SUMMARY.

2. (U) A new OECD report on income inequality, "Growing
Unequal?", states inequality is rising in Japan and
throughout the OECD. According to the report, which defines
poverty as the proportion of people living on less than half
the median income, Japan has the fourth-highest poverty rate
among the 30 OECD members. Measured this way, poverty is
particularly pronounced among Japan's elderly, about
one-fifth of whom live on less than half Japan's median
income; the OECD average is 13 percent. The report also
highlights rising levels of childhood poverty, up from 11
percent in 1985 to 14 percent today. According to the
report, the increase in income inequality in Japan between
the mid-1980s and mid-2000s, a 1.6 point increase in the Gini
coefficient, is slightly less than the 2 point OECD average
increase. However, this cumulative trend obscures the marked
rise in income inequality that Japan experienced during its
late-1980s asset bubble and the follow-on lost decade, as
poorer households' incomes declined and unemployment
increased among young people. Incomes fell during the
current decade as well, with the largest declines among the
top earners, so that income inequality has declined since
2000.

3. (U) NOTE: The OECD report's chosen measure of poverty --
the proportion of people whose income is less than half the
median income -- can be misleading. Relying on income
ignores asset accumulation. Assets are a significant
contributor to overall wealth, consumption, and standards of
living, especially among the elderly. Because Japan's
elderly are a large and growing share of the population,
income-based poverty measures and Japan's Gini coefficient
will rise even if standards of living and Japan's wealth
distribution are unchanged. (Refs B,C) Additionally, the
choice of a relative, rather than absolute, poverty line may
facilitate cross-country comparisons, but does not adequately
capture the changes in living standards that accompany shifts
in the income distribution, even when those shifts are not
accompanied by widening inequality. END NOTE.

4. (SBU) According to Dr. Aya Abe, a poverty and inequality
expert at Japan's National Institute of Population and Social
Security Research (IPSS), while the OECD report's basic
message is accurate, crafting the right policy responses
requires a more nuanced analysis of Japan's poverty and
inequality dynamics. As the OECD report states, the
improvement in Japan's Gini coefficient since 2000 stems from
Japan's top earners' incomes falling faster than the rest of
the population's incomes have fallen, and is part of a
long-term trend of growing inequality. The recent
improvement in the Gini coefficient therefore must be
understood in the context of increasing poverty in Japan.
Three characteristics of relative poverty in Japan are

TOKYO 00003068 002 OF 003

particularly important: the high and relatively constant
poverty rate among the elderly; rising rates among young
Japanese and among children; and uneven geographic
distribution that, in the current legal framework, demands
resources from the local governments least able to provide
them.

POVERTY AMONG THE ELDERLY
-------------------------

5. (SBU) Almost half of those receiving public assistance in
Japan are elderly. Since public assistance is vigorously
means-tested, recipients have low or no income, are without
assets, and lack family support. Because Japan's pension
system was introduced only in the 1960s, the "late elderly"
(aged 75 and older) frequently do not qualify for further
pensions from the state or their employer due to vesting
requirements. Instead, they rely solely on the universal
Basic Pension, which pays just 52,500 yen per month (about
$425) on average. Although 96 percent of Japanese over age
60 receive Japan's Basic Pension (Kiso Nenkin), the number of
seniors receiving public assistance indicates this income is
insufficient on its own.

POVERTY AMONG THE WORKING-AGE POPULATION
----------------------------------------

6. (SBU) Abe's research shows those who "deviate from the
normal life path" by failing to secure full-time employment
upon graduation, failing to marry and establish their own
household, getting divorced, or suffering from a medical
problem or other disability are particularly vulnerable to
poverty and likely to require public assistance. This
situation means those who came of age after the collapse of
the bubble economy were -- and tend to remain --
disadvantaged.

7. (SBU) As Japan's lost decade reshaped its labor markets,
a cohort of young people found part-time work or began
dispatch labor, and have not found a way back into
traditional corporate Japan. These 25-35 year olds are
delaying marriage and putting off having children, declining
to enroll in voluntary insurance and pension plans, and
failing to pay the premiums they owe for the mandatory Basic
Pension because of their underemployment. In the absence of
family support, they fall into poverty, and according to Abe
and others, the most severely affected individuals seem
likely to remain on public assistance throughout their
lifetimes.

POVERTY AMONG CHILDREN
----------------------

8. (SBU) In Japan, as elsewhere, children born to single
mothers are particularly at risk of living in poverty. Abe's
analysis shows childhood poverty occurs when an adverse event
affects the family, such as a parent losing his or her job,
divorce, or the onset of a debilitating illness. If family
support networks fail, these families fall into poverty,
increasing the number of children receiving public
assistance. In this way, rising childhood poverty in Japan
can be seen as a subset of the problem of poverty among
adults.

JAPAN'S PUBLIC ASSISTANCE SYSTEM
--------------------------------

9. (SBU) Japan's welfare system is based in the 1950 Public
Assistance Law, making it the oldest portion of Japan's
social safety net. Built on the principle of state support
to fill the gap between a citizen's best effort and the
minimum cost of living, the law calls for rigorous means
testing and requires family members to provide for one
another. Assistance is provided primarily through cash
transfers, except for some in-kind public services, such as
healthcare. Although the central government sets eligibility
requirements and benefit levels, public assistance is

TOKYO 00003068 003 OF 003

administered locally, including local investigation of
applicants and significant local government financial
contributions.

GEOGRAPHIC DISTRIBUTION OF POVERTY
----------------------------------

10. (SBU) Areas like Okinawa and Hokkaido, with historically
sluggish growth, have high poverty rates. More surprisingly,
so does Kyushu. Even though that island has been regarded as
an area of relative growth, economic activity is increasingly
concentrated in Fukuoka, leaving rural Kyushu behind. The
local governments in these regions face declining tax revenue
as businesses close, young people migrate to more vibrant
areas, and citizens age. These same forces, however, can
lead more residents to apply for public assistance. Since
the central government's contribution will not automatically
change in response to these local conditions, the local
government's budget can be overwhelmed.

11. (SBU) According to Abe, this problem creates a strong
incentive for local government officials to discourage
potential applicants from filing for public assistance.
Since the eligibility criteria are straightforward and local
governments are legally bound to assess each applicant, the
most effective way to minimize the burden of public
assistance expenditures on local government budgets is to
discourage applications. Because the inability to work --
rather than the inability to find work -- is one of the
eligibility criteria, when potential applicants are asked to
look for work rather than apply for public assistance, most
understand the implicit message and do not apply, believing
their application will be denied.

12. (SBU) This dynamic, Abe told Econoff, can cause
underreporting of poverty as measured in the traditional way,
by rates of public assistance receipt, and can lead to
higher-than-expected poverty rates when poverty is assessed
in other ways, such as the income-based measure of relative
poverty invoked in the OECD report.

COMMENT
-------

13. (SBU) A 2006 OECD report highlighting rising inequality
in Japan tapped Japanese voters' anxiety with the inequality
they have come to commonly -- if inaccurately -- attribute to
Prime Minister Koizumi's economic reforms. Koizumi's
successor made his strategy to address the income gap a part
of his legacy. (Refs B,C) Inequality has continued to be a
major political theme, and the Democratic Party of Japan
(DPJ) played on it in the lead up to its 2007 Upper House
election win. The DPJ's recent joint statement with Rengo,
the trade union confederation, (Ref A) emphasizes voters'
livelihood concerns, demonstrating the issue's continued
political salience. With an uncertain global economic
outlook and Lower House elections looming, the OECD report's
unsettling news could provide fodder for politicians and
opinion-makers in the run-up to elections.
SCHIEFFER

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