Since the 1997 banking crisis, income gap has increased again due to a decline in income levels in the bottom of the distribution.

The problem of inequality in Japan is better explained by changing labour market institutions and demographic factors rather than skill-biased technical change and trade explanations. 

The analysis recommends the following policies.

• Active labour market policies aimed at facilitating access of nonstandard workers to regular jobs and at bolstering the capacity of independent or self-employed workers

• Promoting higher representation of women in high-paying occupations through childcare service provision and introducing company policies that regulate gender-based discrimination in employment decisions

• Selectively shift redistribution resources from the elderly to the working population in the form of education subsidies and vocational training services to boost human capital accumulation in the bottom of the income distribution