Social Welfare in East Asia: Low Public Spending but Low Income Inequality?

“Light” welfare states were perceived by some as one source of East Asian economic dynamism. Paper examines the strengths of several East Asian social welfare systems and the challenges they face after the financial crisis. Japan has a fully-fledged social welfare system. Yet her public spending on welfare is low compared to the United Kingdom, especially in sectors such as unemployment and child benefits, housing and personal social services. South Korea and Taiwan have passed important legislation in the last decade to strengthen their social welfare systems. Their public expenditures are therefore bound to rise as their populations age, their old age pension schemes mature and their various social security benefits are progressively extended to marginal occupational groups. Hong Kong and Singapore’s public expenditures on welfare are even lower, mainly because their social security is largely privately financed. On an income inequality scale, Japan ranks between most continental European countries and the United Kingdom, together with Korea and Taiwan. Income in Singapore and Hong Kong is even more unequally distributed than in the United Kingdom. Public transfers contribute little to income equality in East Asian countries. On the other hand, work is more evenly distributed across households. By retaining workers who are not necessarily profitable, enterprises are playing a major welfare role that contributes to low income inequality without high public spending. Three-generation households play a similar role by pooling income between workers and economically inactive people, with women providing personal care for children and the elderly. These forms of enterprise and family welfare are currently being challenged, which may result in increased income inequality. As the state is called upon to fill the gap, public spending is also likely to grow, as is illustrated by recent measures for the unemployed in Korea and investment in personal social services in Japan to tackle her acute ageing problem. [author]