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Why has wage inequality evolved so differently between Japan and the US? The role of the supply of college-educated workers

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  • Kawaguchi, Daiji
  • Mori, Yuko

Abstract

Why has wage inequality not changed in Japan while it has secularly increased in the US over the last few decades? Pointing to the difference in the trends of the college wage premium in the two countries as a proximate cause, this study assesses the importance of the supply factor as a determinant of the college wage premium. The wage differential between college and high-school graduates decreased slightly from 0.35 to 0.34 log point in Japan, while it increased from 0.43 to 0.65 log point in the US between 1986 and 2008. During this period, the number of college graduates grew twice as fast in Japan as in the US. Estimations of labor demands for different educational backgrounds and simulations based on counterfactual supply trends reveal that the more rapid increase of college graduates in Japan than in the US explains about 60% of these contrasting trends. The difference in post-war fertility trends largely explains the difference in the supply increase of college graduates between the two countries.

Suggested Citation

  • Kawaguchi, Daiji & Mori, Yuko, 2016. "Why has wage inequality evolved so differently between Japan and the US? The role of the supply of college-educated workers," Economics of Education Review, Elsevier, vol. 52(C), pages 29-50.
    • Handle: RePEc:eee:ecoedu:v:52:y:2016:i:c:p:29-50
    DOI: 10.1016/j.econedurev.2016.01.002
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    2. Thanos Fragkandreas, 2022. "Three Decades of Research on Innovation and Inequality: Causal Scenarios, Explanatory Factors, and Suggestions," Working Papers 60, Birkbeck Centre for Innovation Management Research, revised Feb 2022.
    3. Inoue, Toshikatsu, 2022. "The effect of aging on the age–wage profile in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 66(C).
    4. Kobayashi, Toru & Yamamoto, Isamu, 2020. "Job tasks and wages in the Japanese labor market: Evidence from wage functions," Journal of the Japanese and International Economies, Elsevier, vol. 58(C).
    5. Havranek, Tomas & Irsova, Zuzana & Laslopova, Lubica & Zeynalova, Olesia, 2020. "Skilled and Unskilled Labor Are Less Substitutable than Commonly Thought," EconStor Preprints 223060, ZBW - Leibniz Information Centre for Economics.
    6. Havranek, Tomas & Irsova, Zuzana & Laslopova, Lubica & Zeynalova, Olesia, 2020. "The Elasticity of Substitution between Skilled and Unskilled Labor: A Meta-Analysis," MPRA Paper 102598, University Library of Munich, Germany.
    7. Mika Akesaka & Koyo Miyoshi, 2018. "Wage Inequality during the Long-term Stagnation in Japan: Changes within and between Establishments," ISER Discussion Paper 1045, Institute of Social and Economic Research, Osaka University.
    8. MORIKAWA Masayuki, 2017. "Are Part-time Employees Underpaid or Overpaid? Productivity–wage gaps in Japan," Discussion papers 17077, Research Institute of Economy, Trade and Industry (RIETI).
    9. Daiji Kawaguchi & Hiroaki Mori, 2019. "The labor market in Japan, 2000–2018," IZA World of Labor, Institute of Labor Economics (IZA), pages 385-385, July.
    10. Daiji Kawaguchi & Hiroaki Mori, 2017. "The labor market in Japan, 2000–2016," IZA World of Labor, Institute of Labor Economics (IZA), pages 385-385, September.
    11. KIKUCHI Shinnosuke & FUJIWARA Ippei & SHIROTA Toyoichiro, 2023. "Automation and the Disappearance of Routine Work in Japan," Discussion papers 23082, Research Institute of Economy, Trade and Industry (RIETI).
    12. IKEUCHI Kenta & FUKAO Kyoji & Cristiano PERUGINI & Fabrizio POMPEI, 2023. "Which Employers Share Rents? A firm-level analysis for Japan," Discussion papers 23048, Research Institute of Economy, Trade and Industry (RIETI).
    13. Hu, Chenxu & Bollinger, Christopher, 2021. "Effects of cohort size on college premium: Evidence from China's higher education expansion," China Economic Review, Elsevier, vol. 70(C).
    14. Fumihiko Suga, 2020. "The returns to postgraduate education in Japan," The Japanese Economic Review, Springer, vol. 71(4), pages 571-596, October.

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    More about this item

    Keywords

    Wage inequality; College wage premium; Cohort crowding out; Skill-biased technological change;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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