Is Japan a poor country?

Japan raced through its post-war period of high economic growth to become one of the world's leading economic powers.

In 2024, its nominal GDP (Gross Domestic Product) was 4.262 trillion dollars, ranking fourth in the world after the United States, China, and Germany.

However, for someone like me who remembers the past, that figure was a surprise.
I recall it being at a level where it was competing for first or second place, so it has dropped significantly.

So, I decided to look into the current situation in various ways.
Since the beginning focuses on numbers, if you are not comfortable with them, please proceed to the <Summary> from the table of contents before reading.

<Comparison of Nominal GDP with 1990>

I will compare this 2024 nominal GDP with the figures from 1990, before the so-called "lost 30 years."

In 1990, the United States remained in first place, but Japan was firmly in second place in the world, and it had a gap of nearly double that of third-place Germany.

However, in 2024, it is in fourth place.

Moreover, during this period, the United States grew about 4.9 times, China in second place grew a staggering 47.2 times, and Germany in third place grew 2.9 times, whereas Japan has hardly grown at all, at 1.2 times.

<GDP per capita>

Furthermore, looking at GDP per capita, it is 32,498 dollars, ranking 38th. This is even lower than South Korea's 36,129 dollars.

<Comparison of GDP per capita with 1990>

Comparing this to the 1990 figures as I did before, it has plummeted from 25,809 dollars and 8th place in the world in 1990 to 38th place. (This table ranks it 36th because Puerto Rico and Aruba are excluded.)

South Korea, which was 41st at the time, has grown 5.3 times to 33rd place, but because Japan has only grown 1.26 times, it has been overtaken.

<Real GDP growth rate>

Looking at the economic growth rate, Japan is at a level of slight growth, ranking 174th at 0.08%, and Germany is 176th at minus 0.23%, so Japan is barely in positive growth.

However, it seems to have turned negative in the most recent period.

The United States is growing at 2.8% and ranks 109th, South Korea is at 2% and ranks 132nd, and China, with its remarkable growth, is at 5% and ranks 38th.

<Average annual income>

Next, let's look at what is happening with individual annual income.

The average annual income in 2023 was $32,409, ranking 24th.

Meanwhile, the United States is at $80,115, ranking 4th,
Germany is at $52,226, ranking 16th,
and South Korea is at $35,063, ranking 22nd, meaning Japan is even below South Korea.

<Wage Growth Rate>

The wage growth rate is the lowest.

Using 1995 as a base of 100, Japan is below that level, and it is the only country among other nations where wages have not grown compared to 30 years ago.
This is the reason why it is called the 'lost 30 years'.

The United States is at 257%,
Germany is at 185%,
and South Korea is at 324%. We have been left far behind.

<Relative Poverty Rate>

This is where the poverty rate comes in.

It is called the relative poverty rate, which is the percentage of people in the population whose income is less than half of the median, and the higher this number, the more people are falling into poverty.

According to 2021 OECD data, Japan is at 15.4%, which is higher than the United States and South Korea, indicating that impoverishment is progressing.
This is surprising.

<Summary>

Japan is still a major economic power, and it seems it is not an absolute poverty country where people cannot even obtain basic food, clothing, and shelter like in developing countries in Africa or South Asia, but the gap is relatively widening, and it has one of the worst poverty rates among developed countries.

Wages are not keeping up with rising prices, productivity is declining, and competitiveness within the OECD is also falling.

<Some Questions>

Looking at this so far, several questions arise.

• Why is GDP growth sluggish?

• Why is there such a gap between GDP and GDP per capita?

• Why is the growth of GDP per capita so low?

• What should be done to increase it?

• Why is the economic growth rate so low?

• Why is the average annual income low?

• What does it mean that the wage growth rate is below 100%?

• What is the reason why the United States has grown by as much as 257%?

• Why is impoverishment progressing?

• Have we been able to break free from the lost 30 years?

• Are we going to end up as a poor country if things continue like this?

I have looked into these various points.

(Why is the economic growth rate low and GDP growth sluggish?)

Although Japan is currently still the world's fourth-largest economy by GDP, as mentioned above, its ranking is gradually falling due to its low growth rate. This seems to be due to a complex interplay of various factors.

• There are many old companies, and productivity is not increasing.

• Institutional reform is also lagging behind.

• Companies prioritize internal reserves and are reluctant to invest.

• Because wages do not rise, consumption does not grow either.

• Due to the declining birthrate and aging population, there is a labor shortage, and the number of consumers is also decreasing.

• Even from a global perspective, Japan is the only country where the population is not increasing.

(Why does the ranking drop when looking at GDP per capita?)

GDP per capita is the figure obtained by dividing GDP by the population.
In other words, because the population is large, the figure obtained by dividing by it becomes small.

Even among developed countries, Japan has a large population.

This represents the reality that while overall GDP, Japan's total strength is high, GDP per capita, individual efficiency is poor, meaning that despite working so hard, we are not being rewarded.

(Why is the growth of GDP per capita low?)

As mentioned above, Japan's GDP per capita has hardly grown, being only 1.26 times higher in 2024 compared to 1990, whereas the United States is 3.6 times higher, Germany is 2.7 times higher, and China has reached 38.4 times higher.

Japan is the only country where both GDP and population remain flat. That is why it does not grow.

(How can we increase GDP per capita?)

To increase GDP per capita, the first thing that is said is to increase labor productivity.

This means we must use AI to automate tasks and promote digitalization to improve efficiency, and focus on creating more added value rather than working long hours.

For this, talent with high expertise and skills is essential, and investment in education to nurture and further develop them is also necessary.

Companies need to move beyond their focus on internal reserves and realize that it is important to return the fruits of success to people through appropriate evaluation and compensation.

By doing so, purchasing power will increase, consumption will be promoted, and a virtuous cycle that generates new growth will be created.

The quiet quitting mentioned in my previous article will likely disappear as well.

(Why is Japan's average annual income low?)

It seems the conclusion came first, but when considering the low average annual income in Japan, it is not simply because the economy is bad.

First, as mentioned earlier, companies have not been allocating much of their profits to wages.
They have been passive about improving employee treatment and have put it on the back burner.

This has become a vicious cycle where, in an attempt to secure stable employment through seniority-based systems and lifetime employment, employees who lack ability but have long tenure are treated the same, resulting in little profit growth and, consequently, stagnant wages.

Also, Japan has a very high proportion of non-regular employees, such as part-timers, temporary workers, and contract employees, at 40%, and since their annual income is about 2 million yen, which is lower than that of regular employees, it significantly drags down the average annual income figure.

This is because cost-cutting has been carried out through labor expenses.

Another factor is that labor unions in Japan are weaker compared to other countries, making it difficult to exert pressure on management for wage increases.

(What does it mean that Japan is the only country where the wage growth rate is below 100%?)

In addition to these factors, from around 1998, the country entered a period of deflation where prices fell.

As prices fell, corporate sales also declined, making it even harder to raise salaries.

Recently, due to the progress of the weak yen, even with the same salary, the wage in dollar terms has mathematically fallen even further.

(What is the reason for the 257% wage growth rate in the United States?)

On the other hand, what is the reason for the significant growth in countries like the United States?

First, the United States has giant companies like Google, Apple, and Amazon, which are generating high profits.
These companies have high wage levels, and an annual income of 15 million yen is said to be not uncommon.

However, it is very severe; if you produce results, you get a raise, but if you don't, you get fired.
Therefore, workers strive to improve their skills, and companies actively raise wages to secure talented personnel.

Also, the United States is chronically experiencing inflation.
This is because it is easy to pass on wage increases to prices.
It is a culture where wages rise in tandem with prices.

When comparing these to Japan, everything seems to be the exact opposite.
While their wage structure is based on meritocracy, Japan's is based on seniority.
They have high labor productivity, whereas Japan's is low.
In terms of industry, they are actively engaged in areas like IT, while Japan's strategy itself is unclear.

(Why is impoverishment progressing?)

Why have we ended up in a state of relative poverty where income is less than 50% of the median income?

That is due to the reasons mentioned earlier:

• There are many 'working poor' people, such as single mothers in non-regular employment.

• The poverty of the elderly, whose pensions are insufficient for living expenses, is serious.

• Educational disparities for single-parent households are leading to poverty in the next generation.

• Disposable income is decreasing due to increases in taxes and social security costs, and the power to reduce inequality through these means is weak, meaning the mechanisms for correcting inequality are not functioning.

• In the first place, because overall wages have not risen, the 'median' itself is low, and because the middle is poor, relative poverty is increasing.

(Unable to break away from the 'Lost 30 Years,' will it remain a poor country?)

In fact, it has been pointed out that Japan may continue to become relatively impoverished as it is.

This is because technological development and entrepreneurial ability are slowing down, leading to a decline in international competitiveness.

As the declining birthrate and aging population reduce productivity, tax revenue will also decrease, making social security even more difficult.
Investment in education and allocation to wages are insufficient, making it difficult to become a sustainable society, and it is said that even the current standard will not be maintainable in the future.

'Quiet impoverishment'is gradually progressing.

<Can Japan prevent itself from becoming relatively impoverished?>

How can we stop this 'quiet impoverishment' where we become relatively poorer in the future?

To do that, we must 'do the opposite' of what has been discussed so far.

We must change the structures of work, education, and redistribution so that we do not become a society where 'working does not pay off.'

(Reform of the wage structure)

We need to reform wages so that people do not end up in a situation where they cannot escape poverty no matter how hard they work, as is the case now.

To correct the low wages of the high percentage of non-regular employees, we must implement equal pay for equal work more thoroughly than we do now.
It is difficult to say that this is having much of an effect yet.

It seems that countries like those in the EU have unified base wages.

Also, because the seniority system is preventing talented personnel from developing, we should review our evaluation methods and shift a bit more toward meritocracy to ensure wages match an individual's actual ability.

In terms of the tax system, a "wage increase promotion tax system," which reduces corporate tax if companies raise wages, was finally introduced last year.
We are hopeful about how effective it will be.

(Strengthening education and growth investment)

By providing support so that people can receive an education and acquire skills regardless of their family environment, we can prevent poverty in future generations.

Free school education is still limited and not widespread in Japan, but it is said that university tuition is free in Germany.

Regarding reskilling for working adults to improve their skills, there are subsidy systems for course fees, but the eligibility is very limited.
In Singapore, it seems that tens of thousands of yen are provided per person.

We also need to strengthen our response to the coming digital society; a "GIGA School Program" seems to have been created, but it will likely take time to be fully utilized.

To further promote internationalization, a review of English education will also be necessary.

(Redesigning social security)

I believe more revisions to the tax system are necessary to reduce inequality as much as possible.

The consumption tax, which is currently an issue, is said to be an unfair, regressive tax where the burden ratio decreases as income increases.

If total abolition is difficult, I would like to see it set to 0% for food products only, or for the overall tax rate to be lowered.

In countries like the United States, there is a "refundable tax credit system" that returns a certain amount to low-income workers.
It seems this is still under discussion (if it is being discussed at all) in Japan.

In France, a similar system provides benefits to households with children based on their income, and allows them to receive medical care and education for free.

Also, regarding the public assistance system, which is currently criticized for being strict on Japanese citizens while lenient toward foreigners, it is necessary to simplify the procedures so that Japanese citizens can receive it more easily.

In Sweden, it seems that a flat basic pension is provided so that people can live even if they are not enrolled in pension insurance.

What is needed now is not to carry out these things separately, but to coordinate and move them forward speedily; however, from what I can see, the situation seems to be a bit far from expectations.

<In conclusion>

Finally, looking at the World Happiness Report, the United States is ranked 23rd and Germany is 24th, whereas Japan is significantly behind at 51st.

I would like to see us improve this somehow.

<Reference Page URL>

OECD Poverty Rate

https://www.oecd.org/en/data/indicators/poverty-rate.html

World Economic Data Book World Rankings

Global Note International Comparative Statistics

Thank you for reading.

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