Income Distribution in the Midst of Globalization and Technological Revolution: Focusing on the Changes in Wage Differential

No.072
April 2000
Fujitsu Research Institute
Japan Economic Research Center

1. Since the 1980s, wage inequality has grown in the U.S., while European countries have instead faced soaring unemployment rates. In contrast to this, the unemployment rate in Japan has grown as a result of the recession of the 1990s, while at the same time wage inequality is even lower than that of European countries. In the case of increasing wage inequality in the U.S., the technological revolution and globalization are often cited as primary factors, but could these same factors be in operation in Japan's case as well?
2. Wage inequalization factors are also at work within the Japanese economy. In industries with a high ratio of college graduates, as well as industries with high rates of increasing labor productivity, wage distribution is wide and there is a possibility that structural shifts in those industries may cause this distribution to increase further. Moreover, it has recently become evident that there is a tendency for industries with greater disparity in academic careers among workers to have higher variance in workers' wages, in comparison to industries with less deviation in workers' academic records. Within the wage system, the weight of wages based on individual characteristics such as age and seniority has decreased while the weight of job-based pay has increased. However, analysis of model wages shows that the considerable growth in the education-wage gap is actually occurring as a result of increasing disparity in job-based wages. Furthermore, technological progress also exacerbates the wage gap between workers with lower academic records and workers with higher records.
3. However, factors that counterbalance such education-wage gaps and wage dispersion among workers also exist. First, the popularization of higher education offsets disparities in academic records, and age disparity is also shrinking due to the aging of society. Due to large average income gaps amongst the elderly, aging is also stimulating wage distribution. On the other hand, through reforms of demand relationships and the wage system, the growth of the elderly demographic is pushing the relative wage down, thereby shrinking the wage gap. Moreover, as the wage system focuses more on the "job content" of workers rather than workers' individual characteristics such as age and seniority, age disparity will decrease. The gender wage gap is also shrinking, as is the disparity in industry-specific wage premiums through the deregulation and other factors. Additionally, the scope of influence of technological progress that has heretofore been weak in Japan is another reason for the avoidance of wage inequality.
4. In the future, the following causes of widening wage gaps (A)-(C) are present on the one hand, while factors for shrinking income disparity (D)-(F) exist on the other.
   
   1. A concern that a bias toward technological progress will strengthen as the technological revolution unfolds,
   2. The effects of the popularization of higher education will peak around 2010,
   3. The growth in the ratio of elderly with wide wage distribution,
   4. Decreasing age-related wage gaps as a result of the aging of society will continue,
   5. Including social factors, the wage gap between men and women is shrinking
   6. Growing labor liquidity lowers wage premiums.

More Informations

• Japanese
• Full text is not available in English for this report.
  The original Japanese full text is PDF here [380 KB]
  Please let us know the serial number of this report (072) to submit a request for translation.