Rising Wage Inequality Within Firms: Evidence from Japanese health insurance society data

Using a novel dataset compiled from Japanese health insurance societies covering about 1,500 firms and 15 million employees in total, we examine wage inequality within and between firms. Employing the mean log deviation approach to decompose wage inequality into within-firm and between-firm inequality, we find that it increased among male employees during the period we examined (FY2003-2007). Moreover, even after controlling for changes in the compositional structure of firms ’ employees, an increase in wage inequality within firms can be observed, greatly contributing to the increase in overall wage inequality, which likely reflects the growing prevalence of performance-based wage systems.