VZCZCXRO2340
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3068/01 3090749
ZNR UUUUU ZZH
P 040749Z NOV 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 8501
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6170
RUEHUL/AMEMBASSY SEOUL PRIORITY 2166
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0749
RUEHNAG/AMCONSUL NAGOYA PRIORITY 8811
RUEHNH/AMCONSUL NAHA PRIORITY 3113
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 4532
RUEHKSO/AMCONSUL SAPPORO PRIORITY 1322
RUEATRS/TREASURY DEPT WASHDC PRIORITY
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