Standard Life Investments

Weekly Economic Briefing

Japan & Developed Asia

Sad state of affairs


The post-war era in developed Asia has been characterised by rapid economic growth and rising per capita incomes. However, while standard of living indicators have increased they continue to lag measures of happiness (see Chart 8). So what explains this sad state of affairs? The UN’s World Happiness Report identifies a number of non-income related factors that might help explain citizens’ perceived perception of life satisfaction or happiness. Looking through the list though, we feel no less in the dark. Developed Asia economies score relatively well on metrics such as quality of health systems. On other measures, such as freedom and equality the picture is more mixed. However, most economies in the region do operate under a democratic system with considerable political and organisation rights, with Singapore the main outlier here. Equality metrics such as Gini coefficients also point to close to OECD average levels of inequality in Japan and Korea, although the metric is considerably higher for Singapore and Hong Kong. Of course, this may reflect the unique city-state structure of the latter two.

Why the long face? Worry not

One area where the most recent UN report spends some time exploring is happiness at work. Typically, these economies would score highly on employment-related indices given low levels of unemployment and its associations on well-being. However, one striking feature flagged in the UN report is the details on employee engagement. According to Gallup World Poll data, East Asia has the lowest ratio of employees who consider themselves actively engaged at work (less than 10%) of all the major regions in the world. Furthermore, the report highlights that among East Asian employees it is office workers that report lower life evaluation. Whether the mood among the region’s so-called salary men and women is so low as to drag overall measures down is not fully clear. However, we do think low employee engagement is indicative of a poor allocation of labour resources and may explain why productivity measures are not as high as one might expect.

One country that is seeking to tackle misallocation of resources in the labour market is Japan. The government’s workstyle reform programme is designed to target labour market duality and increase internal transparency. There are also hopes that the ‘equal pay for equal work’ agenda will dilute the age-related pay system and push corporates to use base pay as the main source of compensation growth – a potential boon for self-sustaining wage inflation. Unfortunately, legislative progress has been brought to a standstill by a scandal on labour market data, which forced the government to abandon a bill to expand ‘discretionary labour contracts’ and allegations about government interference in the sale of public land to a school affiliated with Prime Minister Abe. Typically, we would consider these relatively minor hurdles to overcome given the need to address Japan’s deeply inefficient and unhappy labour market. However, many of Abe’s flagship structural reforms have floundered in recent years. That this has not had more significant implications for the administration’s popularity may reflect a different attitude towards well-being. While Japan remains a laggard on happiness metrics, the Cabinet Office’s anxiety index has seen a substantial fall in recent years (see Chart 9). Satisfaction levels may be low but so too are worries.

Govinda Finn, Japan and Developed Asia Economist