Investment in Employment Relations in Japanese Firms

Abstract

This paper distinguishes between two types of investment in employment relations: Investment in technical skills and investment in the reliability of information exchanged within the firm. The first type of investment affects productivity in ways that are well known. The second type of investment reduces miscommunication, disputes, and inefficient decisions; as a result it promotes cooperative industrial relations and therefore increases productivity. The two types of investment reinforce each other; an increased investment in technical skills stimulates the investment in information reliability and vice versa. The cost of investing in technical skills is a function of the availability of formal education, preparing students for training by imparting positive attitudes toward learning and by teaching mathematics, sciences, and the native language. The cost of investing in information reliability reflects the influences of culture and tradition, as well as workers′ ability and willingness to function cooperatively as a group. I hypothesize that in Japan the investment costs have been lower, and the marginal cost curves more elastic, than those in the United States. As a result, and in response to economic growth during the past three decades, typical Japanese workers have increased their investment in employment relations and have enjoyed more flexibility in working conditions than typical U.S. workers. The model predicts that economic growth and technological progress may stimulate both types of investment. This prediction is noteworthy since Japan′s investments in employment relations became pronounced in the 1960s when its economy experienced rapid technological changes and an accelerated economic growth. J. Japan. Int. Econ., Mar 1995, 9(1), pp. 75-95. Ohio State University, 410 Arps Hall, 1945 North High Street, Columbus, Ohio 43210