A Comparison of Income Inequality in the United States and Japan

A Comparison of Income Inequality in the United States and Japan
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A Comparison of Income Inequality in the United States and Japan
Income inequality represents the gap between the rich and the poor. Over the years, this gap has widened in many countries, especially developed countries. Examining income inequality is important because, according to Taghizadeh-Hesary et al. (2019), high levels of income inequality affect not only the economic growth of a country but also economic sustainability. Further, the trends in income inequality are different from country to country, even if the countries have the same level of economic development (United Nations, 2020). An example is the United States (US) and Japan. These two countries are developed economies with high GDP per capita levels but different income distribution trends (Aizawa et al., 2017). Therefore, they make good case studies for income inequality comparison. Although both countries have experienced a rise in income inequality, Japan has a lower income inequality when compared to the US. This difference has been attributed to several factors that will be discussed in this paper.
Changes in Income Inequality Since 1980
In the last 40 years or so, both Japan and the US have experienced changes in the distribution of income among the poor and the wealthy. According to Albert et al. (2017), following the Great Recession, many developed countries, including the US and Japan, have experienced a rise in income inequality. This section explores how the changes in income inequality in Japan have compared to the changes in the US.
Japan has, in the past, been considered one of the countries with the lowest income inequality. Taghizadeh-Hesary et al. (2019) indicate that there has been a notion that all Japanese are middle class in the past, which has contributed to lower-income inequality compared to the US. However, in the last several decades, Japan has experienced significant changes in income inequality due to several factors. According to Taghizadeh-Hesary et al. (2019), in the 1980s, Japan had the lowest income inequality among the G7 countries, but its income inequality has now risen to 0.5, which is the average income inequality for G7 countries.
In the 1980s, income inequality increased gradually and remained at the same levels the 1990s, as shown in figure 1. According to the World Inequality Database (WID) (n.d.a), in 1980, Japan’s pre-tax national income was 10.9% for the top 1%, 36.5% for the top 10%, and 19.3% for the bottom 50%. By 1990, these figures had changed to 14.8%, 41.8%, and 17.5%, respectively. It is worth noting that even though the pre-tax income for the top 1% and 10% increased significantly, that of the bottom 50% declined slightly. By 2000, the pre-tax income for the top 1%, top 10%, and bottom 50%, was 11.5%, 41.3%, and 16.9%, respectively (WID, n.d.a). As the income for the top10% increased, that of the bottom 50% declined, thereby widening the gap between the rich and the poor. Table 1 shows the pre-tax national income for the last few decades
Table 1: Japan’s Income inequality (1980-2020)

1980

1990

20...