An Empirical Look at the Earnings of Japanese Men The Significance of College Quality, Occupations and Firm Size

International comparisons have identified several unique features of the Japanese labor market and its impact on earnings, namely tenure and firm-size effects, and the similarity in the structure of earnings between blueand white-collar workers. One feature which has received relatively less attention is that the rate of return (ROR) to college education in Japan is lower in comparison to her Western counterparts. However, in a country where examination hell has become a household word and students and parents alike are obsessed with college quality (or prestige), there is sufficient reason to believe that the dimension of college quality plays a vital role in determining earnings. Individuals have the incentives to get into the better colleges because they sufficiently believe that their efforts (or investments) will be realized through higher rewards. Using a 1995 cross-sectional data of Japanese workers and the mean score on the college entrance examinations attended by each individual as a measure of college quality, I follow Griliches and Mason (1972) and examine in detail the relationship between individual ability, college quality and earnings in the Japanese labor market. While considerable attention is paid to this supply-side relationship, I also investigate the impact of demand-side factors on earnings. My findings suggest that: (i) college quality does significantly improve earnings, (ii) tenure effects are significant and positive only among high-school graduates (and not college graduates), (iii) firm-size differences are manifested as an interaction effect with experience, and (iv) the earnings profiles for blueand white-collar workers are parallel. My estimations reveal that the mean ROR is .086, but more importantly, that the ROR with respect to college quality ranges from a low of .031 to a high of .164. The huge variation in the ROR therefore confirms in part that the obsessive pursuit of college quality is in fact a rational pursuit, and suggests that the mean ROR used in international comparisons undermines the significance of college quality in Japan. Researchers and policymakers in the international community should therefore be reminded that college quality plays a crucial role in shaping both incentives and earnings in the Japanese labor market.