This article empirically examines the spread of higher education in Japan and the resulting changes in labor quality in the last two decades. This study uses the Divisia index numbers to measure the labor quality and quality-adjusted labor supply. It points out that quality might have declined rapidly in the recent past among higher educated workers, particularly those with technical and junior college education. This result suggests that the Japanese government should adjust its policy to develop its human resources to focus not only on the relatively low educated or the unemployed workers but also on those with higher educational preparation. (Contains 3 tables, 3 figures, and 10 notes.)