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The Japanese Labor Market in a Comparative Perspective with the United States

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The Japanese Labor Market in a Comparative Perspective with the United States DOCUMENT RESUME ED 347 346 CE 061 584 AUTHOR Hashimoto, Masanori TITLE The Japanese Labor Market in a Comparative Perspective with the United States. A Transaction-Cost Interpretation. INSTITUTION Upjohn (W.E,) Inst. for Employment Research, Kalamazoo, Mich. REPORT NO ISBN-0-88099-104-6 PUB DATE 90 NOTE 160p. AVAILABLE FROMW. E. Upjohn Institute for Employment Research, 300 South Westnedge Avenue, Kalamazoo, MI 49007 (paperback ISBN 0-88099-104-6: $15; hardcover ISBN 0-88099-103-8: $25). PUB TYPE Reports - Research/Technical (143) EDRS PRICE MF01 Plus Postage. PC Not Available from EDRS. DESCRIPTORS Adults; Capitalism; Communication (Thought Transfer); Developed Nations; *Economic Development; Economic Factors; *Economics; *Employer Employee Relationship; Foreign Countries; kHuman Capital; L.vestment; *Labor Market; *Socioeconomic Influences IDENTIFIERS *Japan; United States ABSTRACT A comparison is made of some of the notable features of the Japanese and U.S. labor markets. In Japan,as compared to the United States, for example, levels of employment tenureare higher, employer-employee attachment stronger, earnings-tenure profilesmore steeply sloped, layoffs and dismissals much less frequent, andjoint consultation and consensus-based decision makingmore common. To bring together these phenomena in a single conceptual framework,a theory is formulated that incorporates transaction-cost (communication cost) considerations into human capitaltheory. The theory draws a distinction between two types of investments: investments in firm-specific technical skills and investmentsin the reliability of information exchanged between employerand employees and among employees. This latter type of investmenttakes place in the Japanese practices. It is hypothesized thatthere are more investments in Japan than in the United States because, forvarious reasons, the investment costs are lower in Japan. The investments in both technical skills and in information reliabilitymay be stimulated by technologic!al progress, and the stimulationis greater the more elastic are the cost functions underlying theseinvestments. It is argued that the cost function associated withthe investment in informa.Lion reliability is more elastic ina lower transaction-cost environment. A conclusion based on these results is that cultural-traditiohal influences, which shape the transaction-cost environment, probably interacted with technological:rogress in shaping many of the uniquely Japanese labor marketphenomena. (177 references) (KC) N gtiJAPANESE U 8 DEPARTMENT OF EDUCATiON 4-0 f 04,, abona. Ppseh., 11 ,,n,I-0,0,,(m.gml UCA DONAL Rf SOURCES Nf ORMA 1 ION b (7E MU R f R. Th,S dtht umeni hat. ,P0,00ot PO as r.ved t,on, the <vga,,,zapor. OR w.g.ndl.ng I ha^g("S ha.n Dee", made to ,n,p1Ove teIVOAv(I.on Qvahh _ Po,nts omy opsr.ons <WPC, h.S (10( Ter! nol necessa,..y ,etvesent &boa . oosIwrs ot pot, MARKET in4.4 Comparative) "PERMISSION TO REPRODUCE THIS MA TERIAL 'N MICROFICHE ONLY HAS kNTED BY Perlyeldive A TO THE EDUCATIONAL RESO CES with the INFORMATION CENTER (ERI United States Masanori Hashimoto . 2 The Japanese Labor Market in a Comparative Perspective with the United States A Transaction-Cost Interpretation Masanori Hashimoto The Ohio State University 1990 WE, UPJOHN INSTITUTE for Employment Research Kalamazoo, Michigan Library of Congress Cataloging-in-Publication Data Hashimoto, Masanori, The Japanese labor market in a comparative perspective with the United States / Masanori Hashimoto. p. cm. Includes bibliographical references and index. ISBN 0-88099-103-8(alk. paper). ISBN 0-88099-104-6 (pbk.: alk. paper) I. Labor marketJapan.2. Human capitalJapan.3. Labor marketUnited States.4. Human capitalUnited Statcs. ITitle. HD5827.A6H37 1990 331.12'0952dc20 90-20048 C1P Copyright CO 1990 W E. Upjohn Institute for Employment Research 300 S. Westnedge Avenue Kalamazoo, Michigan 49007 THE INSTITUTE, a nonprofit research organization,was established on July 1, 1945. It is an activity of the W E. Upjohn Unemployment Trustee Corporation, whichwas formed in 1932 to administer a fund set aside by the late Dr. W. E. Upjohnfor the purpose of carrying on "research into the causes and effects of unemployment and measures for the alleviation ot unemployment." The facts presented in this study and the observations and viewpointsexpressed are the sole responsibility of the author. They do not necessarilyrepresent positions of the W. E. Upjohn Institute for Employment Research. Cover design by J.R. Underhill Index prepared by Shirley Kessel Printed in the United States of America 4 , , To Barbara The Author Masa lion Hashimoto has been prokssor of Economics and member of the Institute for Japanese Studies at The Ohio State University since 1987. He received his Ph.D. in Economics from Columbia University, and held apoint- ments at Wayne State University, the University of Washington (Seattle), and Indiana University (Bloomington) before coming to Ohio State. He has also been a National Fellow at the Hoover Institution at Stanford University. He is currently associate editor of the Journal of the Japanese and International Economies, as well as on the editorial board for Atlantic Economic Journal and the Journal of Economic TA velopment. Professor Hashimoto's primary research interests have focused on the economics of fertility in Japan; effects of minimum wage laws on employ- ment, labor-force participation, on-the-job training, unemployment, and youth crimes; human capital theory; and the Japanese labor market. He has published numerous articles in the major professional journals. His other book, Minimum Wages and On-The-Job Training, was published by the American Enterprise Institute. iv Preface This book deals with some aspects ofJapanese labor markets. Itis not about Japanese management practices or about the "Japan-As-Number-One" syn- drome. Nor does it aim to be a comprehensive treatment of Japaneselabor market phenomena; instead, it presents an economic analysisof certain aspects of Japanese labor markets. As such, most empirical materials areexamined from a particular analytical perspective. To formulate the analyticalframework, I incorporate ideas from transaction-cost economics into thehuman capital theory. This approach, it will be argued, can potentiallyaccommodate the analysis of how cultural and traditional factors interact with theinfluences of economic growth. This aspect of the theory is especially attractivefor study- ing labor market institutions in Japan, because, in my view, suchinteractions likely helped shape many of the Japanese labor market practicesduring the country's economic development. For institutional materials and data, I will rely heav existing studies, many of which are in English. Much of thequantitari% idence has been devcioped specifically for this project, though I draw on researchfindings reported in my previous works either alone or with John Raisian.Although the focus is on the Japanese scene, I will try as much aspossible to place the analysis in a comparative perspective with the United States. I wish to take this opportunity to acknowledge my indebtedness to someof the many individuals who have influenced the intellectualorientation of this book: my teachers, Gary S. Becker and Jacob Mincer, who encouraged me tl analyze Japanese labor markets; Yoram Barzel, Steven N.S.Cheung, Levis Kochin, and Keith B. Leffler, who taught me what transaction-ccst economics is about; Ben T. Yu, who colk Sorated with me on a paper which set thedirec- tion for this reseaNh; Ma&atoshi Kuratani, who, through his Ph.D.disserta- tion in the early 1970s and through subsequent contacts, sparked myinterest in applying human capital theory to Japan; and John Raisian, my co-author on many of the papers on Japan-U.S. labormarket comparisons, for many years of productive work together and for letting me usein this book some of the material we developed together. Some of the related materials were presented to the conferences held in Santa Clara (1986), West Berlin (1986), Yokohama (1986), Brussels(1988), Washington, D.C. (1989), Madison (1989), and New York (1990). I would like to take this opportunity to thank the organizers and commentators of these conferences: Ernst W. Strornsdorfer, Peter T. Chinloy, and Duane E. Leigh (Santa Clara); Robert A Hart, John P. Martin, and Peter McGregor(West Berlin and Brussels); Kazutoshi Koshiro, Fumio Ohtake, Akira Ono, and Yoko f", Sane (Yokohama); Robert E. Litan, Alan S. Blinder, and Richard B. Freeman (Washington, D.C.); Jozef M.M. Ritzen and Michael Feuer (Madison); and David E. Bloom, Linda N. Edwards, and Aloysius Siow (New York) for hav- ing provided me with the opportunity to present my research findings and to benefit from their useful comments and suggestions. Seminar and workshop participants at the Meiji Gakuin University, The Ohio State University, Yokohtima National University, the University of Cincinnati, the Upjohn In- stitute for Employment Research, the University of Chicago, and the Univer- sity of Costa Rica offered many useful comments. At about the time this manuscript was being edited, I began investigating the training and employment practices at the Japanese automobile transplants in the U.S. Midwest. By mid-August, 1990 I had visited and interviewed the key personnel at two companiesSubaru-Isuzu Automotive Inc. (SIA) and Diamond-Star Motors (DSM)--and made a preliminary visit to Honda of Ame.ica Manufacturing (HAM), as well. I have incorporated some of what I learned from these visits into the relevant
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