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Implicit Contracts, the Great Depression, and Institutional Change: A Comparative Analysis of U.S. and Japanese Employment Relations, 1920 1940

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  • MORIGUCHI, CHIAKI

Abstract

This article combines a game-theoretic framework and a comparative analysis to study the impact of the Great Depression on private welfare capitalism. Recharacterizing welfare capitalism as an implicit-contract equilibrium, the article documents parallel institutional developments in the United States and Japan in the 1920s and the process of bifurcation thereafter. In the United States, the breach of contract by major employers induced by the depression led to the rise of explicit contracts and legal enforcement institutions. By contrast, the less severe depression in Japan allowed the maintenance of implicit contracts and the formation of complementary labor laws.This article is partly based on my doctoral dissertation. I am deeply indebted to my thesis advisors, Avner Greif, Gavin Wright, Masahiko Aoki, and John Pencavel. I am grateful to Lee Alston, Carliss Baldwin, Samuel Bowles, Adam Brandenburger, Loren Brandt, Amit Bubna, Louis Cain, David Fairris, Joe Ferrie, Price Fishback, Robert Gibbons, Claudia Goldin, Rakesh Kurana, Robert Margo, Jim Minifie, Joel Mokyr, Laura Owen, Ben Polak, Daniel Raff, Paul Rhode, William Tsutsui, Warren Whatley, and two anonymous referees for their valuable comments.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 63 (2003)
Issue (Month): 03 (September)
Pages: 625-665

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Handle: RePEc:cup:jechis:v:63:y:2003:i:03:p:625-665_54

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  1. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
  2. Fishback, Price V, 1992. "The Economics of Company Housing: Historical Perspectives from the Coal Fields," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 346-65, April.
  3. Kanemoto, Y. & Macleod, B., 1989. "Optimal Labor Contracts With Non-Contractible Human Capital," UFAE and IAE Working Papers 116-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Price V. Fishback & Shawn Everett Kantor, 1994. "Did Workers Pay for the Passage of Workers' Compensation Laws?," NBER Working Papers 4947, National Bureau of Economic Research, Inc.
  5. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  8. Prendergast, Canice, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 523-34, May.
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Cited by:
  1. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," Working Papers 126, University of Rome La Sapienza, Department of Public Economics.
  2. Hirokatsu Asano & Takahiro Ito & Daiji Kawaguchi, 2011. "Why Has the Fraction of Contingent Workers Increased? A Case Study of Japan," IDEC DP2 Series 1-3, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  3. NAKABAYASHI, Masaki, 2011. "Career Experience Replaced: Emergence of Japanese Internal Labor Markets," ISS Discussion Paper Series (series F) f157, Institute of Social Science, The University of Tokyo, revised 27 Jun 2014.
  4. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," UMASS Amherst Economics Working Papers 2009-08, University of Massachusetts Amherst, Department of Economics.
  5. Nakabayashi, Masaki, 2011. "Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s," MPRA Paper 30749, University Library of Munich, Germany, revised 06 May 2011.
  6. Kawaguchi, Daiji & Ueno, Yuko, 2013. "Declining long-term employment in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 28(C), pages 19-36.
  7. Jenny Kragl & Julia Schmid, 2006. "Relational Contracts and Inequity Aversion," SFB 649 Discussion Papers SFB649DP2006-085, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Joshua L. Rosenbloom & William A. Sundstrom, 2009. "Labor-Market Regimes in U.S. Economic History," NBER Working Papers 15055, National Bureau of Economic Research, Inc.
  9. NAKABAYASHI, Masaki, 2011. "Acquired Skills and Learned Abilities: Wage Dynamics in Internal Labor Markets," ISS Discussion Paper Series (series F) f153, Institute of Social Science, The University of Tokyo, revised 13 Apr 2014.

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