Perceptions of “Rising Inequality ” in Japan: An Econometric Analysis∗

We are grateful to Kiyoshi Ohta and the participants for helpful comments. 1 Income inequality has recently aroused considerable public interest in Japan. However, empirical studies have documented that the distributions of income and wages have been rather stable for the same period. This contrast puzzles empirical researchers. We seek to find the sources of such an apparent discrepancy between statistics and perception concerning economic inequality. Using an original questionnaire survey, we estimate the determinants of people’s reported perceptions about earnings differentials in Japan. We found that some exceptional groups (i.e. working women and middle-aged college graduates), among whom income inequality has been found increasing, indeed tend to report that inequality has increased. Normative judgments concerning the rising inequality seem to be well explained in terms of self-interests and a sense of fulfillment as regards equality of opportunity. Those who perceive the increasing incidence of homelessness and risk of unemployment also tend to feel a rise in inequality. An interpretation of the puzzle is that statistics are insensitive to changes in the tail ends of income distribution, whereas the media routinely draw people’s attention to examples of extreme poverty or affluence. The second explanation is that while statistics reveal a distribution only up to the present, people’s perceptions extend into the future, hence an “intertemporal ” divergence between statistical data and perception. That is, the distribution of expected lifetime income has probably become wider in recent years, and the reflection of this in income statistics is inevitably yet to come. 2 1