In recent decades, manufacturing automation and information technology have transformed the employment structures in advanced capitalist economies. According to Oesch (2015) and Sachs (2020), while lower-skilled manufacturing occupations decrease, the expansion of higher education upskills the labor force and places them in the growing high-skilled occupations that complement technology and automation. However, Japan seems to be an exception. This essay first reviews Japan’s higher education expansion and discusses aspects of its stratification. Then, it examines the institutional factors leading to Japan’s stratified expansion of higher education. Finally, it explains how Japan’s stratified expansion of higher education fails to reduce employment inequalities. This essay suggests that expanding higher education does not necessarily benefit lower-skilled workers and reduce employment inequalities.
Literature Review
Conventional discussions on inequalities are limited to the advanced capitalist economies in Western Europe. Sachs (2020) discusses the growing inequality associated with technological advancements at the beginning of the 21st century. He identifies that machines increasingly displace lower-skilled workers while higher-skilled workers assume roles of research and development in conjunction with automated machinery and information technologies (Sachs 2020, 185–86). However, lower-skilled workers can upskill through increased education, avoiding “stagnant or declining earnings” (186). Similarly, Oesch (2015) analyzes the labor market upscaling in Western Europe and points out that expanding higher education reduces the lower-skilled labor population and balances the change in the employment structures (112–13).
Japan seems to be an exception to the conclusion of Sachs and Oesch. While Japan’s university enrollment rate skyrocketed from 37.4% for females and 35.2% for males in 1990 to 58.7% for females and 58.6% for males in 2020 (MEXT 2021a), Japan experienced an exacerbation of income inequality exemplified by its increased Gini coefficient from 0.28 in 1985 to 0.33 in 2006 (Yun 2009, 3; OECD 2012, 221).
Existing literature provides only partial accounts of this inconsistency. Some discuss the differentiation in educational quality within Japan’s university system (Tsai and Kanomata 2011; Liu, Green, and Pensiero 2016; Huang et al. 2022). Others analyze the limited institutional capacities of higher education institutions in Japan (Kitagawa and Oba 2010; Hanada 2013). Only a few connects Japan’s higher education system to its changing labor market (Nakajima 2020; Yamanaka and Suzuki 2020). Some research attributes the growing inequality to the recent increase in non-regular employment that significantly reduces labor costs, but they fail to discuss the role of higher education (Yun 2009; Song 2014; Gordon 2017).
Therefore, this essay attempts to explain Japan’s inconsistency with Oesch (2015) and Sachs (2020) by bridging these existing studies and analyzing the structures and actors of Japan’s higher education system.
The Stratified Expansion of Higher Education
The emergence of a modern higher education system dates to the Meiji Restoration era in 1886 (Hanada 2013, 539). The initial goal of Japan’s higher education policies was serving the nation’s interest: modernizing the country and “catch[ing] up with the Western powers” (539). Seven imperial universities were established to serve the national interests, with substantial government regulation, concentrated investment in basic research, and a lack of autonomy and academic freedom (539–40).
After WWII, the American occupation changed the outlook of Japan’s higher education. While academic freedom improved, universities’ autonomy remains weak due to the influence of the Ministry of Education (540–41). With the state’s heavy investment in secondary education, high school graduates skyrocketed in the 1950s. However, nearly half of them could not receive higher education due to the harsh competition of university admissions (Amano 1997, 129). This demographic change shifted public opinion and pushed the Ministry of Education to adopt a laissez-faire policy on higher education institutions in the 1960s (Amano 1997, 129; Huang et al. 2022, 1298–99). Since then, Japan experienced two waves of rapid expansion of higher education, where a substantially larger portion of the labor force began to receive university-level education (Amano 1997, 129–35). From 1960 to 2020, the university enrollment rate grew from 26% to 58% (Amano 1997, 129; MEXT 2021a). This well-trained labor force, primarily in manufacturing, boosted Japan’s post-war economy in the 1960s and 1970s by accumulating labor input with decent skills (129). Moreover, the number of higher education institutions increased from 525 in 1960 to 1,224 in 2011, which seemed to improve the accessibility of higher education (Amano 1997, 129; Higher Education Bureau 2012, 6).
However, the expansion took place disproportionally in private institutions. While entrants to national institutions remained below 100,000 per year from 1960 to 2000, entrants to all higher education institutions rose from around 210,000 in 1960 to 800,000 in 2000, as shown in Figure 1 (Amano 1997, 127). Private institutions substantially contributed to this growth, owing to the government’s laissez-fair policy (Huang et al. 2022, 1298). The number of private institutions has also rapidly increased since the 1960s (1299). By 2021, public institutions accounted for 77.09% of all higher education institutions and 77.17% of all students enrolled in higher education programs (MEXT 2021c; 2021b). Although private institutions grew in numbers, most of them are still of marginal quality especially compared to the national universities (Doyon 2001, 445; Kitagawa and Oba 2010, 508–9). The government dedicates most of its educational expenditures to national universities and leaves a disproportionally small amount to private universities (Kitagawa and Oba 2010, 508). These private universities primarily engage in educational activities at the undergraduate level with little to no resources on research and development (Huang et al. 2022, 1298). In contrast, national universities are of much higher quality: seven out of nine widely recognized elite universities in Japan are national universities (Kitagawa and Oba 2010, 508–9).
Stratification of educational quality is also taking place within these two broad categories. In 2005, Japan’s Central Council for Education proposed a “functional differentiation” policy that places universities into seven categories in a hierarchical manner (Kitagawa and Oba 2010, 510). As seen in Table 1, the government defines the functions, objectives, and target students of each category, from cultivating world-class researchers to training laborers for local community services. Unlike the “invisible differentiation” between national and private universities, the government justifies this “functional differentiation” through “visible evidence of performance” across national and private universities (513). Through differentiated financial allocations, the government reinforces the stratification of Japan’s higher education system (511). Even for higher-quality national universities, the government continuously narrows the eligibility of various budgetary funding while increasing the available funds (512–13). According to Quacquarelli Symonds (2021), the “academic reputation” index of the 13th highest-ranking university in Japan (Hiroshima University) is only 22.5% of that of the highest ranking (University of Tokyo).
Institutional Factors Leading to Stratification
This section analyzes the institutional factors leading to the stratification of Japan’s higher education system. It examines the institutional structures and preferences of three types of agents: (1) universities, (2) the state, and (3) the industry. Since the discussion in this essay mainly concerns the labor force upskilling after the introduction of automation and information technology, this section focuses on the period from 1985 to the present.
Universities
Different institutional structures of various types of universities result in different preference structures. Despite their recent incorporation efforts, national universities rely on government funding to support their academic and research activities (Hanada 2013, 550–51). Thus, they are highly state-coordinated and comply with government policies and developmental strategies, meeting the state’s needs and “producing talents based on national planning” (Huang et al. 2022, 1298–99). Mostly insulated from market forces, they possess the institutional capacity to maintain rigorous quality control mechanisms and high entrance requirements.
In contrast, private universities constantly respond to changing market demands. Their private nature determines that their revenues primarily come from tuition. Capturing the substantial excess of high school graduates incentivized the proliferation of private universities back in the 1960s (Amano 1997, 129–31). To increase tuition revenues, private universities lowered their entrance requirements and attracted students who could not meet the national universities’ high admission standards (138). Consequently, more private universities emerged with increasingly lower entrance requirements to capture the growing 18-year-old population until it reached its peak in 1992, leaving “no money on the table” (Doyon 2001, 445). When the 18-year-old population started to shrink, private universities with lower quality had to relax their admission standards further to maintain their enrollment figures and revenues. Therefore, there has been an increasing stratification of admission standards and the quality of enrolled students among private universities. As private universities respond to the market demands of high school graduates, their academic offerings also vary greatly to accommodate the difference in students’ quality.
The state
There has been a principal-agent problem in higher education between the people and the Japanese government. People want the higher education system to maximize their socioeconomic benefits, such as advanced skills and stable employment. However, the government has other interests. Japan has a highly coordinated economy, where the government actively carries out economic planning (Witt et al. 2018, 24; Menz 2017, 166–70). The government considers higher education as part of their overall coordination: to “manufacture the persons needed by the State” (Smith 1997, 71, as cited in Doyon 2001, 447). Under this principle, the Ministry of Education (MOE) preferred a restrictive approach toward higher education (Amano 1997, 130–35). It hoped to limit higher education opportunities to qualified students and generate higher-skilled workers of high quality, matching the labor market’s demands (130). In other words, the government intended to stratify education into different tiers – primary, secondary, and tertiary – that efficiently produce different types of workers.
However, facing the growing number of high school graduates in the mid-1980s, the MOE had to compromise and permit temporary enrollment expansion (Amano 1997, 133). Expansion in private institutions decreased the MOE’s institutional capacity to implement centralized control and coordination since private institutions are market-responsive and profit-driven (135). As a result, the restrictive approach began to collapse. The MOE could no longer dictate the type of workers produced by private institutions.
Alternatively, the government now coordinates the supply of educated workers through differentiated funding. The government devotes a disproportionate amount of research funding to top-tier national universities and the few elite private universities (Kitagawa and Oba 2010, 512–13). This ensures that the most qualified universities can maintain rigorous admission and academic standards and fulfill the nation’s needs. In contrast, most private institutions do not have the financial incentives to upgrade their quality of education. Therefore, private institutions have limited options in determining their functions and educational objectives (521). The differentiated provision of educated labor shifts from inter-tier to intra-tier stratification.
The industry
Japan’s higher education adequately served the economic demands of the industry until the recent advancement of automation and information technology (Doyon 2001, 447). It produced an obedient labor force with general operational-technical skills, which could be easily trained in factories (448). However, with the rapidly evolving technologies, the Japanese industry has a growing demand for high-skilled occupations in sectors like research and development and professional services. In the meantime, most mid-level manufacturing occupations disappear, and the low-skilled occupations in the lower-tier service sector grow due to consumption upgrading. Therefore, the industry now demands more workers with high social-cultural capital and cognitive problem-solving competencies for high-skilled occupations while retaining a robust demand for workers with only general operational-technical skills for low-skilled occupations.
The industry has no reason to reject the stratification of higher education. On the contrary, it embraces an efficient stratification to maximize its exploitation of surplus labor values. On the one hand, the disproportionate government funding to the top-tier national universities helps produce higher-skilled workers for high-skilled occupations. Assuming Japan’s state-coordinated economy is efficient, the industry has the institutional capacity to signal its changing labor demands, influence the state’s differentiated funding strategies, and produce an optimal supply of higher-skilled labor. On the other hand, private universities guarantee a sufficient supply of educated workers with lower skill levels under the stratified system. Lower-tier service sector jobs require little beyond the general operational-technical skills that even the least qualified private universities can provide.
Impacts on the Employment Inequalities
Traditionally, stable life-long employments, in-house training, and loyalty-based compensations characterize Japan’s labor market. However, this is no longer the norm in Japan. Wage differential increases, the unemployment rate of university graduates surges, and job security abates (Yun 2009, 3; Lee 2011, 257; Gordon 2017, 9). This section offers an institutional account of how Japan’s stratification of higher education contributes to the growing employment inequalities.
Japan’s stratification of higher education creates a stratified workforce. A stratified schooling system distributes students into a stratified hierarchy and formalizes different channels of employment opportunities upon graduation (Kerckhoff 1995, 327–28). Students at top-tier national universities receive better education, collaborate with their highly qualified peers, and have better access to research opportunities. As a result, they acquire more cognitive problem-solving competencies and higher socio-cultural capital in addition to general operational-technical skills. They are thus more likely to gain comparative advantages in securing higher-paying jobs. Other students are similarly channeled to different lower-tier employment opportunities, influenced by their universities’ functions and educational resources (as illustrated in Figure 1). Thus, the overall workforce is highly heterogeneous in educational attainment, skill level, and employment prospect. Moreover, since the entire higher education system is stratified, a worker’s educational background credibly signals their skill level to potential employers. Employers can easily abuse this stratified workforce by using these signals.
Institutional changes in Japan’s labor market further enable employers to abuse the stratified workforce. In the early 1990s, the bursting of the asset bubble drew public criticism of the non-market state coordination model and encouraged liberalization reforms in the labor market (Song 2014, 84–85). Changes in the financial and corporate governance institutions weakened the dominant “intra- and inter-industry wage-coordination mechanism” (87). Moreover, labor market liberalization directly released non-regular workers from state protection and subjected them to market forces (97). It creates a dualism of state-protected insiders and unorganized outsiders. As a result, workers generally possess less leverage in wage bargaining, and employers now have larger institutional capacities to set wages.
Higher-skilled workers become the winners in the labor market. Without collective wage coordination, employers can attract higher-skilled workers by making competitive wage offers. To maximize the companies’ productivity, all rational companies would provide the best worker with a higher wage than other workers, as people care more about their relative gains than their absolute gains (Frank 2011, 23–26). Better workers, usually graduating from higher-ranking universities, have stronger leverages to negotiate wages as more companies make lucrative offers. This auctioning process drives up the overall wage level of all higher-skilled workers.
In contrast, almost everyone else loses. While having fewer skills means lower costs of labor usage, companies would not substitute medium- and lower-skilled workers for the expensive higher-skilled workers in high-skilled occupations. It is costly to make them sufficiently productive through in-house training, which often provides neither cognitive problem-solving skills nor socio-cultural capital. Even if the supply of higher-skilled workers does not meet the growing demands, nobody below a certain skill level is cost-effective in these high-skilled occupations. Given the significant decrease in middle-tier manufacturing jobs, these medium- and lower-skilled workers – the majority of university graduates in Japan – end up in low-skilled occupations that are moderately growing (Lee 2011, 252). The relative surplus of university graduates for low-skilled occupations enables companies to lower their wages. Individual workers have almost no bargaining power to reject these unattractive offers: their only alternative is unemployment. Therefore, medium- and lower-skilled university graduates participate in a reversed auctioning process that selects for lower wages, driving down their overall wage level.
The liberalization of non-regular employment further exacerbates the inequality between higher-skilled and medium-to-lower-skilled workers. Although the total workforce has consistently grown, the number of non-regular workers surged from 6,765,000 in 1982 to 20,429,000 in 2012 to offset the decline of the regular worker population (Figure 2). Non-regular workers include part-time, hourly, contract, and dispatch workers (Gordon 2017, 9). Their work has no fixed terms and is subject to discretionary dismissals (9). Employers are not required to offer health insurance and unemployment benefits to non-regular workers, and they typically reward a much lower wage to non-regular workers (Song 2014, 97; Yun 2009, 3). Many of these emerging non-regular employments are offered to medium- and lower-skilled workers since companies want to minimize labor costs and maximize the flexibility of labor usage. Medium- and lower-skilled workers have no bargaining power to reject non-regular employment, as in the case of lower wages, since their only alternative is unemployment. As a result, employment inequality exists not only in wage incomes but also in job security, social protection, and employee welfare.
These employment inequalities might not exist if Japan’s higher education were not severely stratified. Universities with homogenous quality control mechanisms and shared educational objectives would enable students to acquire equivalent skills. Labor demands of different industries and sectors would result in diverse skill types rather than stratified skill levels. The relative homogeneity of higher education would produce a relatively homogeneous workforce. This workforce could coordinate more easily and acquire greater bargaining power since it is much harder for workers to free-ride. As a result, the wages of low-skilled occupations would be roughly equal to those of high-skilled occupations to compensate workers for not taking alternative tracks of skill acquisition (Autor 2015, 16–17).
Conclusion
This essay reviews the expansion of Japan’s higher education, illustrates aspects of its stratification, analyzes the institutional factors leading to the stratification, and explains how it contributes to the growing employment inequality in Japan. This essay rebuts the arguments by Oesch (2015) and Sachs (2020) that expanding higher education benefits lower-skilled workers and reduces employment inequalities. Instead, it suggests that one must consider the homogeneity of higher education expansion when discussing its impacts on employment opportunities. It also calls for more quantitative research on this topic to provide deeper insights.
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