Industrial Structure, Prefectural Inequality, and Convergence in Pre-war Japan (1874-1940)

The aim of this paper was to examine changes in prefectural income inequality and industrial structure during the pre-war period (1874-1940). The findings of the analysis can be summarized as follows. Prefectural income inequality, which increased in the early stages of Japan’s modern economic development, was mainly due to within-industry differences in labor productivity. From 1874 to 1890 labor productivity differences in the manufacturing, mining, and construction sector increased considerably. Although further analyses are necessary to draw firmer conclusions, it appears that the rise of major industrial centers such as Osaka during this period played a key role. Nevertheless, it is important to note that industrialization was not confined to urban centers, but also took place in other (rural) regions, where increases in employment in the manufacturing sector kept pace with the leading areas. In this sense, it could be said that industrialization during this period was not regionally biased. Moreover, regional inequality increased only moderately in the following period from 1890 to 1909, when the industrialization process had gathered steam. The reason is that although differences in labor productivity due to differences in industrial structure increased during this period, within-industry productivity differences in manufacturing and services did not rise further or in fact declined. A likely reason, it was suggested, was active investment in rural areas as part of the “regional industrialization ideology,” which mitigated labor productivity differences. Overall, the analysis in this paper suggests that changes in industrial structure and in withinindustry differences in labor productivity played a key role in shaping trends in spatial income inequality in Japan.