Establishment Size, Workforce Composition and the College Wage Gap in Japan

In this paper we investigate whether and to what extent the evolution and variability of the college wage gap in Japan can be tracked down to the firm level. To this aim, we use the microdata on workers from the Basic Survey on Wage Structure (BSWS) over the period 2005 to 2018 and link information on individuals, job characteristics and wages to the characteristics of the employer. We focus in particular on establishment size and workforce composition in terms of regular and non-regular employees. We find that increasing establishment size and share of regular workers tend to increase the within-firm wage gap between high- and medium-educated workers, once all observable individual, job and establishment characteristics are controlled for. Our findings corroborate the idea that firm heterogeneity plays a relevant role in shaping wage inequality between education groups and that employer size and share of regular workers are associated with the capacity to attract and keep high-educated employees with unobservable characteristics that justify a wage premium above average market levels.