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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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  • Chiaki Moriguchi

Abstract

This paper employs a game-theoretic framework and a comparative historical analysis to study the impact of the Great Depression on corporate welfarism,' i.e., employers' voluntary provisions of non-wage benefits, greater employment security, and employee representation to their blue-collar workers. By characterizing corporate welfarism as an implicit contract equilibrium, the paper documents parallel institutional developments in the U.S. and Japan towards corporate welfarism during the 1920s and identifies the early 1930s as a bifurcation point at which the two trajectories began to diverge toward two distinctive equilibria. In the U.S., the repudiation of the implicit contracts by most leading firms induced by a deep depression caused a change in the expectations of workers and the public, which, in turn, supported a legal reform and the adoption of explicit employment contracts based on industrial unions and third-party enforcement. Experiencing a less severe depression, most major employers in Japan maintained their implicit contracts, while developing institutional arrangements to mitigate the cost of long-term commitment. In contrast to the U.S., labor laws in Japan developed complementary to private welfare practices, endorsing corporate welfarism based on implicit contracts and internal enforcement mechanisms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9559.

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Date of creation: Mar 2003
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Publication status: published as Moriguchi, Chiaki. "Implicit Contracts, The Great Depression, And Institutional Change: A Comparative Analysis Of U.S. And Japanese Employment Relations, 1920-1940," Journal of Economic History, 2003, v63(3,Sep), 625-665.
Handle: RePEc:nbr:nberwo:9559

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  1. Fishback, Price V, 1992. "The Economics of Company Housing: Historical Perspectives from the Coal Fields," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 8(2), pages 346-65, April.
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  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  5. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 525-48, June.
  6. Kanemoto, Y. & Macleod, B., 1989. "Optimal Labor Contracts With Non-Contractible Human Capital," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 116-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  7. Prendergast, Canice, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, MIT Press, 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, University of Rome La Sapienza, Department of Public Economics 126, University of Rome La Sapienza, Department of Public Economics.
  2. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2009-08, University of Massachusetts Amherst, Department of Economics.
  3. 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.
  4. 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.
  5. 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).
  6. 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.
  7. 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.
  8. Jenny Kragl & Julia Schmid, 2006. "Relational Contracts and Inequity Aversion," SFB 649 Discussion Papers SFB649DP2006-085, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. 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.

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