Scholars argue that institutional arrangements shape migrants' economic integration trajectories, and yet few studies empirically substantiate this. This study identifies employment institutions in Japan that affect skilled foreign workers. We demonstrate that practices ostensibly introduced to benefit these workers are associated with lower pay, after adjusting for human capital and firm characteristics. High levels of gender inequality also severely disadvantage female skilled migrants. These findings demonstrate that in the Japanese case, detrimental employment institutions often cancel out skilled foreign workers' returns to human capital. The results may explain why Japan has failed to attract and retain more skilled migrants.