Weekly Economic Briefing

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20 June 2017

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Japan is enjoying the longest period of economic growth for more than a decade, expanding for five consecutive quarters for the first time since 2005-2006. This may seem a good result, with estimates of potential growth close to 0.5%, but it is still some way behind longer-term historical averages. In theory, a stagnant economy presents a challenge for the mobility of the population within it. This can reflect a weakening of incentives for a number of factors that can reduce both social and economic mobility. The most obvious factor is a weakening of geographic mobility. That has certainly been at play in Japan, with net internal migration on a persistent glide path since the mid-1970s (see Chart 8). Interestingly, geographic mobility may have been partly undermined by the weakening of the nation’s keiritsu-focused industrial organisation and lifetime employment. Strong internal labour markets allowed companies to reallocate workers to different areas in Japan with few objections from employees. If we break down labour flows by region, the influence that geographic mobility has had becomes clear. The big drop came in intra-prefecture (county) migration. Meanwhile, net migration to Japan’s three major metropolitan areas has been positive for 20 consecutive years.

Less trading places
Equality myth?

What does the empirical evidence suggest on relative economic mobility, typically measured as the persistency of income levels between parents and children? Estimates of inter-generational elasticity do not show particularly low mobility. According to Lefranc et al.’s study of the Japanese social stratification and mobility survey, the elasticity came in at 0.35, midway between the high mobility countries of the Nordics, Canada and Australia, with an elasticity around 0.2, and the low mobility nations of the US, UK and Italy, with an elasticity of 0.4-0.5. An alternative study from Ueda found that estimates of economic mobility can diverge depending on the sex of the offspring. With the elasticity of sons estimated at 0.4 or less for married sons, 0.2-0.3 for single daughters, and around 0.3 for married daughters. The last one reflects distortions around married female participation in the labour market, with employment levels lower and the frequency of low-paying part-time work higher. In aggregate, the level of economic mobility in Japan appears higher than some other countries, despite stagnant growth dynamics.

What could explain this phenomenon? One explanation is that Japan’s intra-generational mobility is enhanced by low income inequality. While there is undoubtedly evidence that incidences of absolute poverty are low in Japan and that the top 1% average income has not seen the same rapid acceleration as elsewhere in recent decades, measures of overall income equality do not point to particularly unusual patterns. According to the OECD’s estimates of the Gini coefficient, inequality in Japan is slightly above the OECD average (see Chart 9). Importantly, this reflects inequality amid low income groups, with the proportion of its population in the very lowest household income band relatively high. Indeed, since the mid-1980s Japan is one of the few nations to have seen a decline in the average real income of the bottom 10% of the population. More empirical work is needed to help identify the drivers of mobility in Japan’s unusual economic environment.

Govinda Finn, Japan and Developed Asia Economist

 
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