Some evidence on the cohort earnings differentials of men in Japan

Abstract

This study analyses the cohort earnings differentials of full-time working men in Japan using large micro data on individuals. Log earnings differentials between two cohorts of the same age calculated from 2012 and 2017 surveys reveal a substantial earnings decline for university graduates around age 43 and senior high school graduates around age 38 in 2017. These cohorts experienced a severe deterioration of job opportunities after the bubble burst. The Blinder–Oaxaca decomposition shows that the composition effect dominates the wage structure effect. In particular, a shortened length of tenure and a decline in the share of those working in a large firm are the main causes of the earnings gap for senior high school graduates and for university graduates, respectively. While an increase in the proportion of those working in the service sector and a reduced share of regular workers are also important determinants for the earnings differentials for high school graduates, deteriorated opportunities for promotion to supervisory positions play an important role for university graduates. Extending this analysis to a longer time period and estimating the cohort earnings differential equation clarify that the observed stability of cohort earnings differentials for university graduates emerge not only from the importance of firm size differentials in determining their earning differentials, but also from the high stability of firm size differentials between cohorts for university graduates.