1987 Reports

Wage structures and labor turnover in the U.S. and in Japan

Mincer, Jacob; Higuchi, Yoshio

The starting point of this study is the proposition that intensive formation of human capital on the job is the basic proximate reason for the strong degree of worker attachment to the firm in Japan. The greater emphasis on training and retraining, much of it specific to the firm, results also in steeper wage trajectories, due to growth of skills in the firm. We explore the question of why Japanese firms have a higher investment in human capital when compared to firms in the U.S. Our answer is that Japanese labor policies in the firm represent adjustments of worker skills and activities to very rapid technological changes of the past decades. Using productivity growth indexes for industries in the U.S. and in Japan we test the hypothesis that rapid technical change which induces greater and continuous training, is responsible for steeper profiles, hence indirectly for lesser turnover. The hypothesis is confirmed on the sectoral level in both countries. We conclude that differences in productivity growth between the U.S. and Japan account for 70-80% of the differences in the steepness of wage profiles, hence indirectly for the differences in turnover.