Separation risk and firm size-earnings relationships in Japan and the US

Separations among workers in large Japanese firms, while rare until recentl y are quite costly. Such workers must re-enter another firm at a relatively low level along the tenure-earnings profile, or move to a smaller firm whe re the tenure-earnings profile is much flatter. In either case, in relative terms, separations are very costly to workers in large firms, and such wor kers must be differentially compensated for the risk of separation. The res ults here show that compensation for such separation risk is an important f actor in the firm size-earnings differential in Japan, but not in the US. ( C) 2000 Elsevier Science B.V. All rights reserved.