Can Japan Solve Pay Inequality in the Global Economy?

by Yuri Kasai

Globalization influences each country’s economy and individual salaries. The Lehman Shock of 2008, which happened with the collapse of housing bubble, affected many countries with the economic downturn and led to the global financial crisis. This accident reduced the value of currencies such as the Euro, and European countries suffered from economic recession.

Japan has had the economic downturn of manufacturing companies due to the strong yen. After the Lehman shock, the Great East Japan Earthquake in 2011 affected the world economy again. Many materials and parts supply companies in Eastern Japan area stopped production and Asian economies were disappointed. The exchange of countries’ production, stock and finance occurred. Because we made the global economic system, we cannot escape from the global economy and from competing with each other.

In the result of global competition, some companies have an economic downturn and reduce employment and salaries. This brings about pay inequality. The inequality of salaries in Japan will be mainly these two:

  1. contract employees v. regular employees, and
  2. women v. men.

Contract jobs in Japan are other jobs than regular employees and have the fixed period of employment, shorter time of work, and fewer responsibilities than regular employment (Takeishi, 50). Around 44.2% of contract employees choose this work style, for the reason that they can find no post of regular employment in any companies, according to the questionnaire survey conducted by the Ministry of Health, Labor and Welfare in 2006 (Takeishi, 51). 45.8 % of all companies have the system to change from contract employment to regular employment. Some companies pay the same salary of graduate recruitment for the former contract employees, and others pay the salary of the former contract employees considering about the practical knowledge.

About gender, it is difficult for women to follow the same course as men to be promoted. Only women who have the potential to do good work can be promoted and many women cannot get the management job. There is a big salary gap between men and women.

According to Kenworthy, the countries who have relatively low tax burdens, should ‘allow relatively low wage at the bottom of the earnings distribution’ in order to increase the employment of private sectors. If people with zero or single-earner households at the low end of the distribution, getting a new earnings relative low will push up the income of the household. And, this will reduce income inequality among households. Japan is the country who has relatively low tax burdens compared to Norway. Kenworthy’s idea is effective for many contract employees to get a better salary than today.

Japan is a relatively low taxation country. Considered about national burden rate of taxation, Japan is 38.5% compared to Norway’s 55.4%, Denmark 67.8%, and Sweden 58.9% in 2010, according to the Japanese Ministry of Finance. However, is Kenworthy’s idea effective to Japan? I want to discuss about solution of pay inequality in the concept of Japanese social welfare and the economic situation.

How about equalizing the system of government? Given the philosophy of government, the government has the role to equalize the income and reduce the inequality. Taxation has the role to equalize the inequality of wage. Japan’s low Gini index shows that Japan cannot redistribute the income. Japan needs to reconsider the income tax system and care about national pay inequality. Reduction of minimum wage is not considered about a way to solve inequality wage in Japan and the rise of minimum wage is often considered a good way. However, if the wage increases, the number of employment will decline and unemployed people will increase. Additionally, decision of minimum wage is conducted by the local or central government, not considering the situation of employees. The minimum of wage is decided in no political way. In Japanese system, taxation is a effective way to equalize pay inequality other than decrease of minimum wage.

Secondly, considering about the recent economic situation, the government should not allow the minimum of salary down depending on the economic situation.

Japanese monetary value, Japanese stock value is lower because most of investors who are foreign investors, hesitate to invest in Japan’s stock or money and observe if Japan’s manufacture companies will recover from economy recession of the earthquake. If they can see a little evidence of recovery, they can buy Japanese stock and national debt. Before they do, the economy cannot grow and salaries cannot increase. In this reason, we have to wait for a good season to grow the economy. Or, if we cannot see any growth, with the increase of consumption tax to 8%, the government maybe take the low-price policy and companies would keep the employment at the same level. Reduction of minimum tax will not happen, in my opinion.

Pay inequality becomes a bigger problem with the global economy, although there are many ways to solve the inequality problem and it is difficult to find an effective way to each country. We have to think about how we can equalize inequality in order to make more stable domestic economy and protect people’s life because we will face the risk of widespread of economy recession from the connected world and will face more competitive global market.

References

Takeishi, Emiko. “About the Convert System From a Contract Employee To a Regular Employment” Japanese Employment Research Magazine, 573, 50-53, 2008 April. 18 Dec, 2013.

Ministry of Finance, The bar graphs of OECD countries’ national burden rate of tax, 2010, http://www.mof.go.jp/tax_policy/summary/condition/238.htm. 18 Dec, 2013.

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