Industry, occupation and income inequality in global cities and rural area

The aim of this paper is to consider the theory of Saskia Sassen from her work The Global City regarding relationship between industry, occupation structure and wage inequality and to test her hypothesis on the case of prefectures in Japan. According to this hypothesis, as an effect of globalization, industries such as professional services, IT and banking grow in global cities, while the secondary industry related to middle class decline. Furthermore, these industrial changes give rise to the expansion of both upper (managers and professionals) and lower service occupations (sales and services), and this consequently increases the wage inequality in the global cities. Although she rarely address any other regions but global cities, extending this hypothesis would imply that Tokyo is more de-industrialized, the bipolarization of service occupations and hence also wage inequality is higher than in other regions. Using the census data and Basic Survey on Wage Structure, we test the applicability of this hypothesis on Japan.

Both surveys are conducted every 5 years and we use data for 5 rounds for years 1985 to 2005. We use Gini coefficient for respective prefectures and years as indicator of wage inequality and use this as dependent variable in so called hybrid method of fixed and random effects model. By doing so, we can estimate the effect of time varying predictor variables (the share of industries and service occupations) but also the effect of global city as a time invariant predictor of wage inequality.

Although longitudinal data needs to be analyzed yet, analyses of 2005 data have not shown strong support for Sassen’s hypothesis. This might suggest that growing inequality as a result of de-industrialization and bipolarization of service occupations is not characteristic for Tokyo when regarding also the development in other regions of Japan.