Changes in the structure of wages: The United States vs Japan

Abstract

This paper examines changes in wage differentials by educational attainment and experience in the United States and Japan since the early 1970s. While educational earnings differentials have expanded dramatically in the United States in the 1980s, the college wage premium has increased only slightly in Japan. In contrast to the large expansion in experience differentials for high school males in the United States, the wages of male new entrants have risen relative to more experienced workers for both high school and college graduates in Japan from 1979 to 1987. Macroeconomic factors (increased openness, trade deficits, and labor market slack) and changes in institutional structures (the decline in unionization) are likely to have amplified each other in contributing to a tremendous decline in real and relative earnings of young less-skilled males in the United States in the 1980s. We further find that a sharp deceleration in the rate of growth of college graduates as a fraction of the labor force in the United States helps account for the much larger increase in the college wage premium in the United States than in Japan in the 1980s.