ESRI Discussion Paper Series No.407 Heterogeneity in Wage Growth

Ryo Kambayashi

Professor, Musashi University

Yuko Ueno

Visiting Researcher, Economic and Social Research Institute, Cabinet Office

Abstract

Since 2023, there has been a significant increase in wage growth rates following the Shunto. This paper examines whether this shift in wage growth has spread broadly across the labor market. We calculated the average wage growth rates for employee groups with identical basic attributes that influence wage levels. The findings indicate that the dispersion of these growth rates tended to narrow from the late 2000s through the late 2010s. However, after a temporary rise during the COVID-19 pandemic, this dispersion has increased sharply since 2023. Results of a variance decomposition suggest that the narrowing of dispersion from 2006 to the late 2010s was driven not by a reduction in growth variance between different attributes, but rather by a narrowing of variance among employees within the same attribute groups. Since 2023, as labor market supply-demand dynamics have increasingly been reflected in wage hikes, the dispersion of wage growth has expanded. In particular, differences in growth rates across firm sizes and regions have contributed significantly to this expansion. This trend likely reflects the widening gap in the financial capacity to raise wages between firms and regions, particularly as profitability has surged for a subset of companies during the post-pandemic recovery phase.