The Structure of Earnings in Japanese Manufacturing Industries: A Human-Capital Approach

Abstract

The aim of the paper is to explain the earnings structure in manufacturing industries in Japan mainly by differences in resources used to create and improve the skills and knowledge of the working force. The approach provides the opportunity of analyzing the effects on earnings of experience inside and outside of the firm, given educational level attained, and to inquire whether the behavior of the Japanese worker corresponds to returns to these different forms of experience. The results suggest that outside experience is quite important, and that it is substitutable, to a great extent, for inside experience. These results do raise questions about the true extent of the nenkô wage system. A by-product of the paper is a calculation of the rate of return to a college education in Japan.