Wage Differentials: An International Comparison

385 Pages·1998·30.156 MB·English

by  Toshiaki Tachibanaki (eds.)

Wage Differentials
An International Comparison
Edited by
Toshiaki Tachibanaki
Kyoto Institute of Economic Research
Kyoto University
Japan
First published in Great Britain 1998 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-26283-0 ISBN 978-1-349-26281-6 (eBook)
DOI 10.1007/978-1-349-26281-6
First published in the United States of America 1998 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-17482-8
Library of Congress Cataloging-in-Publication Data
Wage differentials: an international comparison I Toshiaki
Tachibanaki.
p. em.
Includes bibliographical references and index.
ISBN 978-0-312-17482-8 (cloth)
I. Wages--Case studies. 2. Wage differentials--Case studies.
I. Tachibanaki, Toshiaki, 1943-
HD4906. W343 1997
331.2'2---dc21 97-6280
CIP
Selection, editorial matter and Chapters I and 7 © Toshiaki Tachibanaki 1998
Other chapters © Macmillan Press Ltd 1998
Softcover reprint of the hardcover 1st edition 1998 978-0-333-67050-7
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Contents
Preface vii
Notes on the Contributors ix
Introduction to Wage Differentials: An International
Comparison 35
Toshiaki Tachibanaki
2 Japan: Wage Differentials and Changes since the 1980s 35
Yuji Genda
3 Korea: Wage Determination and Labour Turnover 72
Yuji Genda and S~ung-Yeol Yee
4 The United States 108
Fumio Ohtake
5 Canada: Canadian Wage Differentials with Special
Attention to Its Occupational Age-Wage Profile 145
Yoshi-fumi Nakata
6 Australia: Wage Differentials 173
Terukazu Suruga
7 The United Kingdom 210
Toshiaki Tachibanaki
8 Germany 239
Yasunobu Tomita
9 France: Internal Labour Markets and Wage Structure 271
Naoki Mitani
10 Wage Differentials between Industries in Asian
Countries 328
Toshiaki Tachibanaki, Masayuki Morikawa and
Taro Nishimura
Index 369
v
Preface
Wages are very important determinants of earnings. Several countries,
notably the UK and the USA, experienced increasing earnings inequality
in the 1980s and the early 1990s. We can observe renewed interest in
earnings inequality and wage differentials recently.
Traditionally, the most popular subject regarding wage differentials was
occupational wage differentials. In other words, economists focused on
'How are wages distributed among various occupations?', 'Why are there
occupational wage differentials?', and so on. Several economic theories
were prepared to respond to the above questions such as the theory of
human capital, the compensating balance theory and the job matching
theory.
The purpose of this book is twofold. First, wage differentials are exam
ined from an international perspective. We pay attention to a large number
of variables which affect wage differentials. Second, occupational wage
differentials are investigated statistically and interpreted, based on various
economic theories. A serious international comparison is attempted to
these with emphasis on various developed countries.
Several notable features of this book may be described as follows. First,
data on individual wage figures with a large number of employee's charac
teristics and firm's characteristics are applied. Second, common statistical
methods are used to facilitate strict comparability and easy interpretation.
Third, we take Japan as the only target country for an international
comparison. This has one attraction because we can understand the com
parative aspect easily. (See the recent excellent study by Freeman and
Katz ( 1995) entitled Differences and Changes in the Wage Structure
(University of Chicago Press), which took the USA as a target country.)
Also, it fills a gap in the limited knowledge on Japan in the study of
economics world-wide. Fourth, nearly all the authors of this book are
Japanese. Although this feature is certainly a disadvantage in view of the
fact that foreign economists have to write on wages in foreign countries,
we attempted to minimize it by choosing economists who have some
research experience of their chosen countries, and by adopting various
strategies such as common study methods and very frequent collabora
tions and discussions.
We consider the following eight countries: Japan, (South) Korea, the
USA, Canada, Australia, the UK, Germany, and France. Chapter I of this
vii
viii Preface
book explains the reasons why these countries were chosen. These coun
tries are investigated based on a common framework and methods.
Chapter 10 investigates mainly the following Asian countries: Japan,
(South) Korea, Taiwan, Thailand, China and India. Since the method for
investigation is considerably different from that for the first eight coun
tries, no consistent comparison between the main part and Chapter 10 is
attempted. Chapter 10 is presented to show the Asian industrial wage
differentials whose empirical evidence should be lacking but stimulating.
We are very grateful to the Ministry of Labour of the Japanese govern
ment, in particular Eiji Shiraishi, and the Centre for Labour Research in
Japan which supported the project both financially and logistically. The
authors are fully responsible for the research results and opinions
expressed in this book. Finally, we are grateful to Tim Farmiloe of
Macmillan who enabled us to publish this book, and to Keith Povey for his
careful editing job.
TOSHIAKI T ACHIBANAKI
Notes on the Contributors
Yuji Genda is Associate Professor of Economics at Gakushuin
University. He has written extensively on the Japanese labour market
issues, especially on changes in overall wage inequality, firm size wage
differentials, hiring practices, and job creation and destruction. He is a
Visiting Senior Researcher of the Japan Institute of Labour and also co
editor of its journal, Monthly Journal of Japan Institute of Labour.
Naoki Mitani is Professor of Economics at Kobe University. Previously
he was invited Professor at Orleans University. His main fields of inter
est are the internal labour market, wage structures, employment of the
elderly, and employment by gender. He has written numerous articles in
academic journals and books including Internal Wage Structure and
Labour Market.
Masayuki Morikawa is Associate Professor of Economics at Saitama
University. He has been working at the Ministry of International Trade
and Industry (MITI) of the Japanese government. He is interested in trade
and industry, and published various papers on these subjects.
Yoshi-fumi Nakata is Associate Professor of Industrial Relations at
Doshisha University. He is a research adviser at the Japan Institute of
Labour (JIL) and RENGO Research Institute. He is also a member of
Advisory Meeting of Confederation of Japan Automobile Workers'
Unions (JAW). His main field of interest is wage structure and wage
determination. His publications include a forthcoming book, Work and
Pay: Employment and Wage Systems in Japanese and US Firms, written
with Clair Brown, Michael Reich and Lloyd Ulman.
Taro Nishimura works at Toyo Trust and Banking Ltd. He contributed
his work in this volume while he was employed by the Ministry of
International Trade and Industry (MITI) of the Japanese government.
Fumio Ohtake is Associate Professor of Economics at Osaka University.
He has published numerous articles on labour, social security and taxation,
including two books, Economics Analysis on Taxation and Social Security
and A Study Guide to Macroeconomics, both in Japanese.
IX
X Notes on the Contributors
Terukazu Suruga is Professor of Economics at Osaka Prefecture
University. He has had several visiting positions in the USA, Australia,
New Zealand and China. He has published numerous articles in labour
economics on topics such as labour demand and wage determination. His
field of interest also includes consumption, income distribution and the
economics of Australia.
Toshiaki Tachibanaki is Professor of Economics at Kyoto University.
He has taught at several universities and had research positions in Europe
and the USA, and had several visiting positions at various institutions of
the Japanese government such as EPA, MOF, MITI, etc. and the Bank of
Japan. His main interest is labour, finance and public economics, and he
contributed numerous articles in these fields. He has published two
English books, Wage Determination and Distribution in Japan and Public
Policies and the Japanese Economy, as well as many Japanese books.
Also, he edited various books in both English and Japanese, including
Labour Market and Economic Performance. He has served on the editorial
board of several academic journals such as Economics of Education
Review and Labour Economics: An International Journal.
Yasunobu Tomita is Professor of Economics, Osaka Prefecture
University, where he has been teaching labour economics and the
Japanese economy. He has written numerous articles on labour, mainly on
women's employment, and two books, Career Women in the Workplace
and Some Topics on Unemployment Statistics, both in Japanese.
Seung-Yeol Yee is Researcher at the Research Institute of the Japanese
Economy at the University of Tokyo. His main field of interest is labour
economics, especially labour contracts, internal labour markets and wage
determination in Japan and Korea.
1 Introduction to Wage
Differentials: An
International Comparison
Toshiaki Tachibanaki
1.1 INTRODUCTION
Wages (or earnings) are probably the most important variable together
with employment in labour economics. A large number of studies asso
ciated with labour are concerned with wages and/or employment (and thus
unemployment). Wages play a central role in the determination of both
the supply and the demand for labour, which determine both employment
and unemployment through market forces. Also, wages can be regarded as
the most important source of individual (or household) income which
determines the well-being of individuals. However, qualifications of em
ployees and contributions to a firm are quite different. Thus, it is natural
that an employer pays different wage levels among various employees.
The current book is concerned with the latter aspect, namely, 'how wages
are distributed and differentiated among wage earners', as the central
subject. Its emphasis is an international comparison of occupational wage
differentials. We examine the following eight countries for our compre
hensive comparison: Japan, (South) Korea, the USA, Canada, Australia,
the UK, Germany and France. Motivations for choosing these countries
will be described later in this chapter.
1.2 MOTIVATION OF THIS BOOK
1.2.1 Interests in Occupational Wage Differentials
Traditionally, occupational wage differentials, or wage differentials by
occupation, were the main subject among various issues regarding wage
earnings distribution in economic science. For example, the principal
subject of several books such as Brown ( 1977), Friedman and Kuznets
(1945), and Lydall (1968), which may be called 'classics' in contemporary
35
2 Introduction to Wage Differentials
times and which dealt with personal earnings distribution, is occupational
wage distribution.
We know that the UK provided us with the first developments in econ
omic science. Several 'classical' writers such as A. Smith, D. Ricardo and
others argued about the relationship between wage earnings and occupa
tion, and presented us with early ideas such as the theory of human capital
and the theory of compensating differences. Chapter 7 of this book for the
UK discusses this early development of economic analysis on the relation
ship between wage earnings and occupation.
The most simple and apparent example regarding occupational wage
differentials is given by the fact that wages for white-collar jobs are
normally higher than those for blue-collar jobs. The traditional theory of
occupational wage differentials found causes for explaining the reasons
why white-collar workers receive higher wages than blue-collar workers.
Incidentally, the fact that white-collar jobs are rewarded more highly than
blue-collar jobs is the universal observation in all countries except for
several cases. The examples of such exceptions are as follows. First,
several former socialist countries showed higher wage payments to blue
collar jobs than to white-collar jobs (in particular less skilled white-collar
jobs) based largely on the ideological (i.e., Marxian) idea. (See Brown
1977) about this.) Second, the theory of compensating balance can be
applied for explaining the reason why several exceptionally physically hard
blue-collar jobs or jobs with unfavourable working conditions receive
higher payments than white-collar jobs even in capitalist countries. Except
for these cases, it is not an exaggeration to describe the observation that
white-collar jobs receive higher wages than blue-collar jobs as universal in
all countries. Thus, it should be an essential result for the story of occupa
tional wage differentials, if we were able to show the cause of the above
universal observation properly. Economists and sociologists prepared the
following fundamental theories to explain the above universal observation.
First, skill requirement is considerably different among various jobs to
perform such jobs successfully, and white-collar jobs normally require
higher skills than blue-collar jobs. For example, it is easy to understand
that an engineer who designs and constructs a machine has a higher intelli
gence and skill level than an operator who manipulates it. Related to this,
the degree of difficulty and responsibility associated with a job task is also
considerably different among various jobs. For example, a manager who
administers many subordinates has to perform a difficult task, and thus
has higher leadership and responsibility. Also, a simple sales job in retail
trade can be occupied by nearly all persons who do not have particular
skills. It is, nevertheless, true that some sales jobs require higher skills. In