Nonprofit Wage Premiums in Japan's Child Care Market:Evidence from Employer-Employee Matched Data

This paper investigates nonprofit wage premiums in Japan's child care labor market, an area that has not yet been studied. We take advantage of a unique, large, and high-quality data set on child care workers collected in the summer 2002 to evaluate nonprofit wage premiums after controlling for selection bias and various characteristics of employers and employees. Our findings demonstrate that wage premiums in the nonprofit sector relative to subsidized for-profit centers were clearly observed in Japan's child care industry; the estimated hourly wage differential is 28.3 percentage points (398 yen in real value), even after controlling for differences in subsidies for each area and facility. Second, nonprofit firms are more likely to value workers with respect to age, market experience, education, qualifications, and the size of firms than are subsidized for-profit firms. Third, more experienced workers with higher levels of education and qualifications, who therefore may provide higher quality of care, tend to choose working in nonprofit centers because they are more likely to be valued in the not-for-profit sector compared to the proprietary sector. Fourth, significant amounts of nonprofit wage premiums in the child care market are most likely to be caused by the high value on not-for-profit workers rather than on the presence of a larger number of workers who have unmeasurable comparative advantage in the nonprofit sector. To improve the efficiency of child care management and break through the bottleneck of child care supply, therefore, the policy should shed light on the lavish and inefficient rate of return to workers in the not-for-profit sector.