Tuesday, December 26, 2006
Posted by Alan Childress
Minoru Nakazato (U. of Tokyo, Law), Mark Ramseyer (Harvard Law [pictured right]), and Eric Rasmusen (Ind.-Bloomington, Dept. of Bus., Econ. & Pub. Pol'y [below]) have posted on SSRN their comparative and empirical study of the Japanese legal profession: "The Industrial Organization of the Japanese Bar: Levels and Determinants of Attorney Incomes." [And my earlier post is here on significant changes in bar admission, and counting lawyers, in Japan over the past two years.] In 1999, Ramseyer and Nakazato published the book, Japanese Law: An Economic Approach [pictured left, since I cannot find Nakazato's photo anywhere].
An easier-to-access version of the new article, in very legible PDF form, is also found here from Harvard's Olin Center website. Here is their SSRN abstract:
Using micro-level data (from tax records) on attorney incomes in 2004, we reconstruct the industrial organization of the Japanese legal services industry. These data suggest a bifurcated bar. The most talented would-be lawyers (those with the highest opportunity costs) pass the bar-exam equivalent on one of their first tries or abandon the effort. If they pass, they then opt for careers in Tokyo that involve complex litigation and business transactions. The work places a premium on their talent, and from it they earn appropriately high incomes.
The less talented face lower opportunity costs, and willingly spend many years studying for the exam. If they eventually pass, they tend to forego the many amenities available to professional families in Tokyo and disproportionately opt for careers in the under-lawyered provinces. There, they earn monopoly rents not available in the far more competitive Tokyo market.
Earlier this month, the three posted elsewhere on SSRN an empirical paper on executive compensation in Japan (considering total income, executives earn far less than their U.S. analogs). Its abstract is below the fold and the paper is linked here in a handier PDF version.
Most studies of executive compensation have data on pay, but not on total income. Studies of executives in Japan do not even have good data on pay. Although we too lack direct data on Japanese salaries, from income tax filings we compile data on total executive incomes, and from financial records obtain some indication of which executives have substantial investment income. We find that Japanese executives earn far less than U.S. executives -- holding firm size constant, about one-third the pay of their U.S. peers. Using tobit regression analysis, we further confirm that executive pay in Japan depends on firm size, with an elasticity of .24, but not on accounting profitability or stock returns. Corporate governance variables such as board composition have little or no effect on executive compensation, except that firms with large lead shareholders do appear to pay less.