Foreign-Native Wage Differentials and the Role of Visa Regime in Japan: Evidence from the Linked Employer-Employee Data, 2020-2023

Using newly available linked employer-employee data, we investigate foreign-native wage differentials in Japan. Our contribution is twofold: first, we benchmark Japan against Western countries by following Hermansen et al. (2025)’s method; second, we exploit Japan’s tightly structured visa regime to analyze how immigration policy shapes the economic integration of foreign workers. We find that the raw foreign-native wage gap of 28% shrinks to 16% after controlling for employee attributes, and disappears entirely when accounting for workplace characteristics. Compared to the West, across-firm sorting and within-firm task segregation-rather than occupational segregation-plays a greater role in Japan. Moreover, while patterns of wage convergence vary starkly by visa category, foreign wage disadvantage becomes negligible in all visa categories once all factors are controlled. Our results reveal highly segmented labor market in Japan where employee and workplace attributes differ sharply not only between native and foreign workers, but also among foreign workers across visa categories. We argue that Japan’s demand-driven visa regime facilitates near complete wage convergence albeit at the cost of substantial labor market segmentation.