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Did American welfare capitalists breach their implicit contracts during the Great Depression? Preliminary findings from company-level data

  • Chiaki Moriguchi

It has been claimed that American employers' experiments in private welfare capitalism collapsed during the Great Depression, giving place to the welfare state and industrial unionism. Recent studies, however, reveal considerable differences in experience across firms. The author of this study, who characterizes private welfare capitalism as a set of human resource management practices constituting an implicit contract equilibrium, tests the implications of implicit contract theory using data from fourteen leading manufacturing firms. The repudiation of implicit contracts, she finds, was positively correlated with the severity of the Depression's effects experienced by firms and negatively correlated with the effectiveness of firms' "internal enforcement mechanisms." Also, the degree to which firms repudiated implicit contracts was positively related to employee support for outside unions and explicit employment contracts under the New Deal regime. A comparative case study complements the empirical findings by documenting internal dynamics and offers further insights. (Free full-text download available at

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Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 59 (2005)
Issue (Month): 1 (October)
Pages: 51-81

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Handle: RePEc:ilr:articl:v:59:y:2005:i:1:p:51-81
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