Changes in the Generative Process of Wage Gaps: An Analysis of Employer-Employee Matched Data in Japan

This study aims to clarify changes in the processes through which wage gaps based on individual-level variables—gender, employment type, education, and so on—are generated in the Japanese labor market. Takahashi (2016) argued that analyses of wage-gap generation must account for two key levels of wage determination: the wage level of the firm and the firm’s internal wage system. In his analysis, Takahashi estimated wage-function coefficients using pooled ordinary least squares (OLS) and fixed-effects models based on employer-employee matched data, comparing the results to distinguish between these two levels. For example, his analysis showed that wage gaps by education were shaped not only by the intra-firm wage system but also by the wage level of the firm itself. Building on this approach, this study analyzes data from the “General Survey on Diversified Types of Employment,” conducted by Japan’s Ministry of Health, Labour, and Welfare in 2010 and 2019, to identify changes in the wage-gap generation process. The dependent variable is hourly wages, while the independent variables include gender, age, education, occupation, employment type, and tenure, with firm IDs used in the fixed-effects model. The results show that wage gaps based on education widened slightly, while wage gaps based on gender and employment type narrowed in the overall labor market during the 2010s. Furthermore, a closer examination reveals that intra-firm wage gaps based on education expanded significantly, contributing to the growing wage disparity by education in the broader labor market. These findings suggest that understanding shifts in the intra-firm wage system is essential for comprehending changes in overall labor market dynamics.

Reference: Takahashi (2016) “Two Components of Wage Gaps Induced by Individual-level Variables: Intra-firm or Inter-firm?” International Journal of Japanese Sociology, Volume 25, pp.117–130. (https://doi.org/10.1111/ijjs.12040)