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The Theory of Contracts and Labor Practices in Japan and the United States

  • Yoshitsugu Kanemoto
  • W. Bentley MacLeod

Labor management practices in Japan are quite different from those in the United States. Based on recent developments in contract theory, we develop a conceptual framework to understand why the differences have been maintained for a long period time. Our basic message is that the American and Japanese systems are two different equilibria. The distinguishing feature is the extent to which exit is used as a method of contract enforcement. In the U.S., there is a greater tendency for exit because active markets exist for senior workers. In contrast, there is virtually no market for mid career workers in Japan.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 708.

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Length: 21 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:qed:wpaper:708
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