Pay Differentials: The Case of Japan

By Evans, Robert, Jr. | Monthly Labor Review, October 1984 | Go to article overview

Pay Differentials: The Case of Japan

Evans, Robert, Jr., Monthly Labor Review

In review of industrial relations research conducted during the 1970's, James G. Scoville writes that, in both Japan and the United States, size-of-firm wage differentials are explained by differences in employees' human capital. However, two recent studies suggest that human capital differences do not completely explain the differential in this country. Using data for 1979, Wesley Mellow found that wages in firms of 1,000 more workers were 8 percent greater than those in firms with fewer than 25 workers when a number of factors, including education and experience, were held constant. Martin E. Personick and Carl B. Barsky, who studied pay at various experience and responisbility levels of professional, technical, and clerical occupations, reported size-of-firm differentials for all but 1 of 25 job levels. Typically, these were only for the largest corporations (more than 10,000 employees), where differentials were 10 to 15 percent for professionals and 20 percent for clerical and technical occupations over pay in firms with 500 or fewer employees.

If elements of human capital do not completely explain size-of-firm differentials in the United States, is Japan a similar case? This article explores that issue, and suggests an answer based on data from the Chingin Kozo Kihon Tokei Chosa [Wage Structure Survey]. The employment decision in Japan

The model employment relationship in Japan is that of Shushin Koyo ]lifetime employment]. Under this system, workers are initially employed upon graduation from school. Once a worker is hired, the firm goes to great lengths to provide continuous employment until the individual retires, sometime between the ages of 50 and 60. In return for the understood employer commitment to long tenure, the employee is expected to devote himself fully to the firm and to allow management considerable flexibility as to the type and geographical location of work assignments.

Remuneration consists of a basic wage, various allowances, a semiannual bonus, and a number of fringe benefits. The basic wage depends upon the employee's education, age, and job abilities. It is increased annually based upon decisions made in collective bargaining. The annual increase consists of two parts, one of which recognizes an additional year of service to the firm, new job abilities, and merit, and another that is a general increase in the base wage.

Given the employment opportunities and wage patterns faced by the graduating student, what pecuniary variable should be used in making the employment decision? Clearly, it is some subjective assessment of the present value of future earnings with the various firms. Such a present value calculation would incorporate growth of the firm relative to the economy, the pattern of wages associated with long tenure, the pattern of wages if tenure is short because of voluntary mobility or the firm's economic difficulties, and so forth. For the observer trying to approximate such individual calculations, the most desirable data would be those on wage and bonuses by worker age, education, and length of service, and, for the question at hand, the size of the employing firm. Fortunately, these data are available in the annual Wage Structure Survey. It is thus possible to account for the principal elements of huamn capital that economists believe are important for wage determination, and to differentiate these among three size-of-firm categories. (Of course, the individual graduate also considers other, unquantifiable factors, such as his preference for risk, the prestige of the firm, and subjective probabilities of advancement, in making the final decision.) Differentials by size of firm

Table 1 presents monthly wage and wage-plus-bonus relationships by size of firm and by workers' age and educational attainment for Japanese men who have been continuously employed by the same firm. (In 1980, about one-fourth of the regular private-sector labor force were employed by firms of 1,000 workers or more, and another one-fourth were in firms with 100 to 999 employees. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Pay Differentials: The Case of Japan


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

    New feature

    It is estimated that 1 in 10 people have dyslexia, and in an effort to make Questia easier to use for those people, we have added a new choice of font to the Reader. That font is called OpenDyslexic, and has been designed to help with some of the symptoms of dyslexia. For more information on this font, please visit

    To use OpenDyslexic, choose it from the Typeface list in Font settings.

    OK, got it!

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search


    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.