The Japanese Labor Market in a Comparative Perspective with the United States. A Transaction-Cost Interpretation.

A comparison is made of some of the notable features of the Japanese and U.S. labor markets. In Japan, as compared to the United States, for example, levels of employment tenure are higher, employer-employee attachment stronger, earnings-tenure profiles more steeply sloped, layoffs and dismissals much less frequent, and joint consultation and consensus-based decision making more common. To bring together these phenomena in a single conceptual framework, a theory is formulated that incorporates transaction-cost (communication cost) considerations into human capital theory. The theory draws a distinction between two types of investments: investments in firm-specific technical skills and investments in the reliability of information exchanged between employer and employees and among employees. This latter type of investment takes place in the Japanese practices. It is hypothesized that there are more investments in Japan than in the United States because, for various reasons, the investment costs are lower in Japan. The investments in both technical skills and in information reliability may be stimulated by technological progress, and the stimulation is greater the more elastic are the cost functions underlying these investments. It is argued that the cost function associated with the investment in information reliability is more elastic in a lower transaction-cost environment. A conclusion based on these results is that cultural-traditional influences, which shape the transaction-cost environment, probably interacted with technological progress in shaping many of the uniquely Japanese labor market phenomena. (177 references) (KC)