The Effect of Mandatory Retirement on Earnings Profiles in Japan

Abstract

Using data from the Japanese Basic Survey on Wage Structure for 1981 and 1986, the authors estimate the effect of the age of mandatory retirement on the rate of growth of earnings with job tenure in Japan. The results indicate that an increase in the age of mandatory retirement reduces the rate of growth of earnings. This finding suggests that the existence of long-term employment contracts is a more likely explanation of the steep earnings-experience profiles of Japanese workers than is the specific human capital model.