Non-Standard Employment and Increasing Wage Inequality in Japan

Wage inequality has increased and low-paid non-standard workers have surged since the 1980s in Japan. This paper investigates how increasing non-standard employment has caused recent trends in wage inequality using a novel methodology and data from the Employment Status Survey (1987 to 2012), a Japanese official survey conducted by the Ministry of Internal Affairs and Communications. In order to decompose changes in the distribution of wages from 1987 to 2012, distributional changes are divided into a wage structure effect and a composition effect using a reweighting method and recentered influence function regressions of the unconditional quantile. We find that the effects of non-standard employment on distributional changes are different between men and women. For men, wage structure effects and composition effects linked to employment status have contributed to an increase in wage inequality. Although a small portion of non-standard male workers is well-paid, an increase in non-standard workers has formed a cluster of low-wage workers, which has resulted in an increase in wage inequality. On the other hand, for women, the effects of non-standard employment have contributed to a decrease and an increase in wage inequality. Because few female non-standard workers earn a high wage, their wage distribution has become compressed at the top end of the distribution, which has led to a decrease in wage inequality. In the meantime, female non-standard employment has spread to a variety of industries and occupations and skilled non-standard workers have become indispensable in many workplaces. Despite many non-standard workers are still low-paid, their median wage has risen, which has caused an increase in wage inequality at the bottom end of the distribution. Our findings suggest that institutional factors such as non-standard employment matter for understanding recent trends in wage inequality in Japan.