Much research has been done on the rising wage inequality and the related factors that we see not only around the world but also in Japan. There is no consensus as to the cause, and this column decomposes wage inequality in Japan and aims to show the extent to which it increased among men and women in Japan between the 1990s and 2000s, determine the factors that affected these changes, and identify the people that were most affected by the changes. In the November issue of the RIETI Report, we present the column "Changes in wage inequality and structure of wage determination in Japan" originally published on VoxEU by Keio University Professor Yoshio Higuchi, Consulting Fellow Naomi Kodama, and Hitotsubashi University Assistant Professor Izumi Yokoyama.
Higuchi et al. tracked wages during the financial and real estate bubble at the end of 1980s, the Asian currency crisis in 1997, the IT bubble in the early 2000s, and the Global Crisis in 2008. They find that wage rates changed, but wage inequality did not. Since the 2000s, the wage rate of the middle class has been reduced more than that of any other group, although Japan is known for its solid middle class. Their research shows a decrease in the return on general human capital of males and top females and an increase in the return of firm-specific human capital among male workers with a high wage rate. They suggest that Japanese firms undermined employee involvement and problem solving activities at the grassroots level and invested in just a few selected able workers because they no longer have enough reserves to invest in all of their employees.