Performance-pay and the gender wage gap in Japan

Summary

The research paper "Performance-pay and the gender wage gap in Japan" by Chiang and Ohtake investigates how performance-based compensation influences the gender wage gap across the entire earnings distribution in Japan. Utilizing data from the Japanese Survey of Living Preferences and Satisfaction, the authors employed a counterfactual decomposition analysis, as introduced by Machado and Mata (2005), to meticulously dissect the contributing factors to this disparity. The study distinguishes between workers receiving performance-based pay and those who do not, offering a nuanced understanding of the mechanisms at play. A primary finding reveals that for the overall sample of workers, a sharp acceleration of the gender wage gap at the highest echelons of the wage distribution is not generally observed. However, when focusing on white-collar workers, distinct patterns emerge depending on their compensation structure. Specifically, a "glass ceiling" effect, where women's career advancement is hindered at higher levels, is evident for white-collar employees not receiving performance-based pay. In contrast, for white-collar workers compensated by performance pay, the raw gender wage gap tends to remain relatively stable above the 60th percentile of the wage distribution. Critically, the study demonstrates that the raw gender wage gap among the performance-pay group is substantially larger, approximately 5 to 18 percentage points greater across the wage distribution, than that observed among the non-performance-pay group. Further decomposition analysis elucidated the underlying reasons for these gaps. For non-performance-pay workers, differences in promotion opportunities and attainment between women and men are identified as the main drivers explaining the gender wage gap at the upper end of the distribution. This suggests that systemic barriers to advancement disproportionately affect women in traditional compensation structures. Conversely, for performance-pay workers, the gender wage gap at the top of the distribution is primarily attributed to gender differences related to working in large companies. This implies that while performance pay aims to link compensation directly to output, organizational structures and opportunities within larger firms might still favor men, leading to persistent wage disparities. The research highlights the complex interplay of compensation systems, career progression, and organizational characteristics in perpetuating the gender wage gap in Japan.