Pay Systems, Career Paths, and Earnings Inequality
Compensation systems and wage structures, which provide incentives and construct income differences among workers, constitute essential elements of any employment system and economy. If they are to function well, pay systems must be coherently integrated with the other elements of the employment system. In this chapter, we examine the structures of compensation in the United States and Japan and their relation to the broader institutional structure of each country's employment system. Our discussion of pay systems in the two countries begins with the stylized facts that motivate our analysis.
Six stylized facts that characterize economic outcomes in each country provide the starting point for this chapter. Each fact summarizes an important aspect of the level and distribution of earnings in Japan and the United States. We present these facts briefly and then return to discuss them in more detail later in the chapter.
The first stylized fact concerns the much faster growth of real wages and productivity in Japan than in the United States. When one makes this comparison, it is instructive to review both the long-term trends and the figures for more recent years. From 1970 to 1990, real wages in Japan rose 71 percent but increased only