Why U.S. Wage and Employment Behavior Differs from That in Britain and Japan
AbstractThis paper argues that rigid wages cannot provide the underpinnings of a universally valid theory of the business cycle, simply because wages are not universally rigid. Several different statistical techniques suggest that wage rates in the U.K. and Japan are between three and 15 times more flexible than in the U.S. during the postwar period. Corresponding to greater flexibility in wages, these two countries also exhibit more stable employment behavior over the business cycle. In historical data covering the period between the late-nineteenth-century and 1940, U.S. wage behavior appears to be much more similar to that in Britain and Japan. The contrast between the prewar data and the postwar data, where the U.S. is a definite outlier, suggests that the 1948 invention of the three-year staggered U.S. wage contract may be the crucial factor underlying sluggish U.S. postwar wage dynamics. A theoretical section attempts to distill from recent literature those features of labor market institutions that are regarded as optimal by economic theory. Japanese institutions exhibit more similarity to this theoretical paradigm than those in the U.S. or U.K. Economic theory predicts that long-duration contracts, like those in the postwar U.S., are more likely to emerge when the perceived cost of renegotiation is high, but we must appeal to history and cultural differences to explain why conflict avoidance plays a more prominent role in the development of Japanese labor market institutions than in the American case. In this comparison Britain is the odd-man-out, with well-publicized industrial strife, together with short contract durations. I appeal to history, the different legal tradition, and the nature of the British unions themselves to explain why the three-year contract became established in America but not in Britain.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0809.
Date of creation: Apr 1982
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Gordon, Robert J, 1982. "Why U.S. Wage and Employment Behaviour Differs from That in Britain and Japan," Economic Journal, Royal Economic Society, vol. 92(365), pages 13-44, March.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro,Robert J. & Grossman,Herschel I., 2008. "Money Employment and Inflation," Cambridge Books, Cambridge University Press, number 9780521068659, October.
- Brunner, Karl & Meltzer, Allan H., 1977. "Stabilization of the domestic and international economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 1-6, January.
- Jon Frye & Robert J. Gordon, 1981.
"Government Intervention in the Inflation Process: The Econometrics of "Self-Inflicted Wounds","
NBER Working Papers
0550, National Bureau of Economic Research, Inc.
- Frye, Jon & Gordon, Robert J, 1981. "Government Intervention in the Inflation Process: The Econometrics of "Self-Inflicted Wounds"," American Economic Review, American Economic Association, vol. 71(2), pages 288-94, May.
- Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
- James L. Medoff & Katharine G. Abraham, 1981.
"Experience, Performance, and Earnings,"
NBER Working Papers
0278, National Bureau of Economic Research, Inc.
- Robert E. Cole, 1972. "Permanent employment in Japan: Facts and fantasies," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 26(1), pages 615-630, October.
- William H. Branson & Julio J. Rotemberg, 1991.
"International Adjustment with Wage Rigidity,"
in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 13-44
National Bureau of Economic Research, Inc.
- William H. Branson & Julio J. Rotemberg, 1981. "International adjustment with wage rigidity," NBER Chapters, in: International Seminar on Macroeconomics, pages 309-332 National Bureau of Economic Research, Inc.
- Branson, William H. & Rotemberg, Julio J., 1980. "International adjustment with wage rigidity," European Economic Review, Elsevier, vol. 13(3), pages 309-332, May.
- Akerlof, George A, 1980.
"A Theory of Social Custom, of Which Unemployment May be One Consequence,"
The Quarterly Journal of Economics,
MIT Press, vol. 94(4), pages 749-75, June.
- George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
- Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
- Gordon, Donald F, 1974. "A Neo-Classical Theory of Keynesian Unemployment," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 431-59, December.
- Grossman, Herschel I, 1977. " Risk Shifting and Reliability in Labor Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 187-209.
- Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
- George L. Perry, 1975. "Determinants of Wage Inflation Around the World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 403-448.
- Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
- William D. Nordhaus, 1972. "The Worldwide Wage Explosion," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(2), pages 431-466.
- Dighe, Ranjit S. & Schmitt, Elizabeth Dunne, 2010. "Did U.S. wages become stickier between the world wars?," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 165-181, August.
- Nakabayashi, Masaki, 2011.
"Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s,"
30749, University Library of Munich, Germany, revised 06 May 2011.
- 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 30597, University Library of Munich, Germany.
- Hart, Robert A. & Malley, James R., 2000.
"Marginal cost and price over the business cycle: comparative evidence from Japan and the United States,"
European Journal of Political Economy,
Elsevier, vol. 16(3), pages 547-569, September.
- Robert A Hart & James R Malley, 1995. "Marginal Cost and Price Over the Business Cycle: Comparative Evidence from Japan and the United States," Working Papers Series 95/13, University of Stirling, Division of Economics.
- Maria Scattaglia, 1994. "Politiche per l'occupazione e Microfondamenti "Keynesiani" dell'economia del lavoro," Working Papers 196, Dipartimento Scienze Economiche, Universita' di Bologna.
- Kawai, Eizo, 2001. "Re-examination of wage, employment, and hours adjustments: what is crucial for differences in the adjustments?," Japan and the World Economy, Elsevier, vol. 13(4), pages 483-497, December.
- Darby, Julia & Hart, Robert A. & Vecchi, Michela, 2001. "Labour force participation and the business cycle: a comparative analysis of France, Japan, Sweden and the United States," Japan and the World Economy, Elsevier, vol. 13(2), pages 113-133, April.
- Keating, John W. & Nye, John V., 1999. "The Dynamic Effects of Aggregate Demand and Supply Disturbances in the G7 Countries," Journal of Macroeconomics, Elsevier, vol. 21(2), pages 263-278, April.
- Hart, Robert A. & Malley, James R. & Ruffell, Robin J., 1996. "What shapes are overtime premium schedules? Some evidence from Japan, the UK, and the US," Economics Letters, Elsevier, vol. 53(1), pages 97-102, October.
- Johnes, Geraint & Tanaka, Yasuhide, 2008. "Changes in gender wage discrimination in the 1990s: A tale of three very different economies," Japan and the World Economy, Elsevier, vol. 20(1), pages 97-113, January.
- Victor Zarnowitz, 1989. "Cost and Price Movements in Business Cycle Theories and Experience: Hypotheses of Sticky Wages and Prices (SEE ALSO WP3132-send out together)," NBER Working Papers 3131, National Bureau of Economic Research, Inc.
- Julia Darby & Robert A Hart & Michaela Vecchi, 1998. "Labour Force Participation and the Business Cycle: A Comparative Analysis of Europe, Japan and the United States," Working Papers 9802, Business School - Economics, University of Glasgow.
- John B. Taylor, 1984.
"Union Wage Settlements During a Disinflation,"
NBER Working Papers
0985, National Bureau of Economic Research, Inc.
- Seltzer, Andrew, 2010. "Did firms cut nominal wages in a deflationary environment?: Micro-level evidence from the late 19th and early 20th century banking industry," Explorations in Economic History, Elsevier, vol. 47(1), pages 112-125, January.
- Higashi, Youichiro, 2002. "Firm specific human capital and unemployment in a growing economy," Japan and the World Economy, Elsevier, vol. 14(1), pages 35-44, January.
- Yamane, Linus, 1998. "The insider-outsider model and Japanese labor unions," Japan and the World Economy, Elsevier, vol. 10(2), pages 157-171, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.