Table Of ContentINTERNAL LABOUR MARKETS,
INCENTIVES AND EMPLOYMENT
Also by Isao Ohashi
THE THEORY OF LABOUR MARKETS
Also by Toshiaki Tachibanaki
LABOUR MARKET AND ECONOMIC PERFORMANCE: Europe,
Japan and the USA (editor)
PUBLIC POLICIES AND THE JAPANESE ECONOMY: Savings,
Investments, Unemployment, Inequality
WAGE DETERMINATION AND DISTRIBUTION IN JAPAN
WAGE DIFFERENTIALS: An International Comparison (editor)
Internal Labour
Markets, Incentives and
Employment
Edited by
Isao Ohashi
Professor of Economics
Nagoya University
Japan
and
Toshiaki Tachibanaki
Professor of Economics
Institute of Economic Research
Kyoto University
Japan
9&
First published in Great Britain 1998 by
« MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 0-333-66673-9
First published in the United States of America 1998 by
fifi ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 0-312-21193-7
Library of Congress Cataloging-in-Publication Data
Internal labour markets, incentives and employment / [edited by] Isao
Ohashi and Toshiaki Tachibanaki.
p. cm.
Includes bibliographical references and index.
ISBN 0-312-21193-7 (cloth)
1. Labor market—Japan. 2. Labor market—United States. 3. Labor
market—Europe. 4. International division of labor. I. Ohashi,
Isao, 1945- . II. Tachibanaki, Toshiaki, 1943- .
HD5827.A6I55 1997
331.12'0952—dc21
97-38225
CIP
Selection, editorial matter and Chapter 1 © Isao Ohashi and Toshiaki Tachibanaki 1998
Chapter 3 © Souichi Ohta and Toshiaki Tachibanaki 1998
Chapter 11 © Isao Ohashi and Hiroshi Terayama 1998
Chapters 2, 4-10 © Macmillan Press Ltd 1998
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with
written permission or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988, or under the terms of any licence permitting limited copying issued by
the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identified as the authors of this work in
accordance with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and
sustained forest sources.
10 9 8 7 6 5 4 3 21
07 06 05 04 03 02 01 00 99 98
Printed and bound in Great Britain by
Antony Rowe Ltd, Chippenham, Wiltshire
Contents
Preface vii
Notes on the Contributors viii
1 Introduction 1
Isao Ohashi and Toshiaki Tachibanaki
Part I Wages
2 Wages and Labour Market Institutions in International
Comparison 19
Coen Teulings and Joop Hartog
3 Job Tenure versus Age: Effects on Wages and the Implication
of Consumption for Wages 49
Souichi Ohta and Toshiaki Tachibanaki
Part II Bargaining and Incentives
4 Fighting for Turf in an Internal Labour Market 81
H. Lome Carmichael
5 Decentralised Personnel Management 98
Hideshi Itoh and Osamu Hayashida
6 A Model for Patterns of Industrial Relations 126
Shigeru Wakita
Part III Employment Policy
7 Hiring Risky Workers 143
Edward P. Lazear
8 Employer Learning and the Signalling Value of Education 159
Joseph G. Altonji and Charles R. Pierret
9 Employment Adjustment in Japanese Firms: Negative
Profits and Dismissals 196
Terukazu Suruga
v
vi Contents
Part IV The Internal Labour Market
10 Is Japan's Long-Term Employment System Changing? 225
Hiroyuki Chuma
11 Intra-Firm Mobility, Wages and Promotion in the Japanese
Employment System 269
Isao Ohashi and Hiroshi Teruyama
12 German Job Mobility and Wages 300
Klaus F. Zimmermann
A Historical Note: Does History Matter? 333
Konosuke Odaka
Index 337
Preface
Preliminary versions of the papers included in this book were presented at
the Conference 'Internal Labour Markets, Incentives and Employment',
held at Lake Biwa, Japan, in July 1995. The conference was organised by
Isao Ohashi and Toshiaki Tachibanaki, and financed by the Kansai
Economic Research Centre, and we are indebted to the Centre for its
support.
This volume is the second English publication in the Biwako
Conference series. The first was published by Macmillan in 1994 - Labour
Market and Economic Performance: Europe, Japan and the USA. We are
grateful to Macmillan for continuing to publish the Biwako Conference
series.
The Biwako Conference has been held every year for the more than
thirty years, and it is known as one of the most prestigious conferences for
economists in Japan. It occasionally organises the international confer
ence. Financial support has always been provided by the Kansai Economic
Research Centre, and we are very grateful to the Centre for its continuing
support.
This conference volume focuses on the subject, 'Internal Labour
Markets, Incentives and Employment'. The book is concerned with the
relationship between the role of internal labour markets and economic
incentives, both macro and micro, and the effect of internal labour markets
on employment adjustment, including new hires and discharges. The
volume includes both theoretical and empirical works, and the editors
believe that it will provide readers with much useful insight and under
standing of the subject covered.
Finally, the editors would like to express their gratitude to the following
individuals - Messers Tetsuro Kawakami (the former President of the
Kansai Economic Research Centre), Yasuo Shingu (the President of the
Centre), Kosaku Yoneda (the Executive Director of the Centre),
Professors Chikashi Moriguchi (Tezukayama University) and Toshihisa
Toyoda (Kobe University) - for their advice and support.
ISAO OHASHI
TOSHIAKI TACHIBANAKI
vn
Notes on the Contributors
Joseph G. Altonji is Professor, Department of Economics, and Faculty
Fellow, Institute for Policy Research, at Northwestern University, USA.
His research has focused on the nature of labour market fluctuations,
labour supply, consumption, the effects of immigration on the labour
market, the returns to job seniority, intergenerational links in income and
consumption, information and the labour market, the economics of educa
tion and econometric methods. He is a Research Associate of the National
Bureau of Economic Research and a Fellow of the Econometric Society.
H. Lome Carmichael is Professor of Economics and Head of the
Department at Queen's University in Kingston, Ontario, Canada. He is an
Editor of the Journal of Labor Economics and an Editorial Board member
of the American Economic Review. He has been studying labour market
institutions for many years, and has published papers on seniority rules,
promotion contests, academic tenure and Japanese practices such as multi-
skilling. Recently he has been examining evolutionary models of prefer
ences, and has written on gift-giving practices and the role of territorial
behaviour in the establishment of property rights and in bargaining theory.
Hiroyuki Chuma is Professor of Economics, Faculty of Economics, at
Hitotsubashi University, Japan. He is interested in labour economics and
the economics of insurance, and has contributed numerous articles in these
fields. He has published Labour Economics (in Japanese) and co-edited
Economic Analysis of Life Insurance (in Japanese).
Joop Hartog has been Professor of Microeconomics at the University of
Amsterdam since 1981. He was Associate Professor at Erasmus
University, Rotterdam, and visitor at various universities in Europe and
the USA. His main fields are labour economics, econometrics and micro
economics, and he has contributed many articles in these fields. He edited
Labour Market Institutions and Contracts: A Cross-national Comparison
and he is currently the co-editor of Labour Economics: An International
Journal.
Osamu Hayashida is Lecturer at Osaka Keizai University, Japan. His
main fields of interest are the delegation of authority and task assignment
Vlll
Notes on the Contributors IX
over management of human assets in organisations by means of the
incomplete contract approach. He has written several articles on the
field.
Hideshi Itoh is Associate Professor of Economics at the Institute of Social
and Economic Research, Osaka University, Japan. He is an Associate
Editor of the Journal of the Japanese and International Economies, the
International Economic Review, and a co-editor of Journal of Economics
and Management Strategy. He has written numerous articles on contract
theory, human resource management and organisation theory.
Edward P. Lazear is Jack Steele Parker Professor of Human Resources
Management and Economics at Stanford University, USA. Before
teaching at Stanford, he spent nineteen years teaching at the University of
Chicago. He is the founding and current editor of The Journal of Labor
Economics and the current president of the Society of Labor Economists.
He has written or edited seven books and over 100 articles. His expertise
is in labour economics and microeconomics with an emphasis on the
economics of personnel. In addition to his academic work he has served
and an advisor to a number of governments.
Konosuke Odaka is Professor of Economics and Economic History,
Institute of Economic Research, at Hitotsubashi University, Japan. He has
written many books and articles in both Japanese and English, including
Labour Market Analysis, as well as a large number of articles on labour
economics and economic history. His current interest is Asian economic
development and economic history.
Isao Ohashi is Professor of Economics at Nagoya University, Japan.
Previously he was Associate Professor of Economics at Nagoya City
University and at Tsukuba University. He has written extensively
on theoretical and empirical economics and labour economics. His
publications include The Theory of Labor Markets (in Japanese).
Souichi Ohta is Assistant Professor of Economics at Nagoya University,
Japan. His main field of interest is labour economics, especially the inter
nal labour market in the firm, wage determination and labour turnover. He
has written several articles on the field.
Charles R. Pierret is a research economist in the Office of Economic
Research and Program Development in the Bureau of Labor Statistics, US
