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Winning the race against technology

March 13, 2014
Daiji Kawaguchi*
Yuko Mori**

Abstract

This study examines the importance of the supply factor as a determinant of the college wage premium by comparing the trends of the college wage premium between Japan and the US. The wage differential between college and high-school graduates decreased from 0.35 to 0.34 log points in Japan between 1986 and 2008, while during the same period, it increased from 0.43 to 0.65 log points in the US. This paper demonstrates that the more rapid increase in the number of college graduates in Japan than in the US explains about one-third of these contrasting trends. A simulation indicates that if the supply in the US had followed that in Japan, the return to college would have increased by 0.15 point instead of the actual 0.23 point. The difference in post-war fertility trends largely explains the difference in the supply increase of college graduates between the two countries.

This paper is parts of the research programs, "Basic Research on the Japanese Labor Market" and "Reform of Labor Market Institutions" of the Research Institute of Economy, Trade and Industry (RIETI). This paper was presented at the conference "Globalization and the Resilience of Japan's economy" jointly organized by Bank of Japan and the University of Tokyo. We gratefully acknowledge useful comments from Souichi Ohta of Keio university who served as a discussant at the conference. The previous draft was circulated under the title "Stable Wage Distribution in Japan, 1982-2002: A Counter Example for SBTC?" The usage of micro data from the Labor Force Survey and Basic Survey on Wage Structure was made possible with special permission from the Ministry of Internal Affairs and Communications. We also appreciate comments we received from Yukiko Abe, Hideo Akabayashi, Munetomo Ando, Tony Atkinson, Richard Blundell, Julen Esteban-Pretel, Tor Ericksson, Masahisa Fujita, Hidehiko Ichimura, Toshie Ikenaga, Ryo Kambayashi, Takao Kato, Takashi Kurosaki, Ayako Kondo, David Lee, Chiaki Moriguchi, Masayuki Morikawa, Ryo Nakajima, Jiro Nakamura, Isao Ohashi, Fumio Ohtake, Albert Park, Katsuya Takii, Ryuichi Tanaka, Atsuhiro Yamada, Kazuo Yamaguchi, Shintaro Yamaguchi and seminar participants at RIETI, the Allied Social Science Association annual conference, Hitotsubashi University, the Institute of Statistical Research, Nihon University, the Japan Economic Association, the European Association of Labour Economists, the workshop on inequality and poverty in the global economy at the Centre for European Economic Research (ZEW), the Labor Economics Conference at Osaka University, the Workshop on Empirical Social Science at Kanazawa University, and Waseda University.

*Hitotsubashi University
E-mail : kawaguch@econ.hit-u.ac.jp
**Japan Society for Promotion of Science and Hitotsubashi University
E-mail : k121012z@r.hit-u.ac.jp

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