Working Paper: NBER ID: w9559
Authors: Chiaki Moriguchi
Abstract: This paper employs a game-theoretic framework and a comparative historical analysis to study the impact of the Great Depression on corporate welfarism,' i.e., employers' voluntary provisions of non-wage benefits, greater employment security, and employee representation to their blue-collar workers. By characterizing corporate welfarism as an implicit contract equilibrium, the paper documents parallel institutional developments in the U.S. and Japan towards corporate welfarism during the 1920s and identifies the early 1930s as a bifurcation point at which the two trajectories began to diverge toward two distinctive equilibria. In the U.S., the repudiation of the implicit contracts by most leading firms induced by a deep depression caused a change in the expectations of workers and the public, which, in turn, supported a legal reform and the adoption of explicit employment contracts based on industrial unions and third-party enforcement. Experiencing a less severe depression, most major employers in Japan maintained their implicit contracts, while developing institutional arrangements to mitigate the cost of long-term commitment. In contrast to the U.S., labor laws in Japan developed complementary to private welfare practices, endorsing corporate welfarism based on implicit contracts and internal enforcement mechanisms.
Keywords: No keywords provided
JEL Codes: N30; N40; N60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Great Depression (G01) | repudiation of implicit contracts (D86) |
| repudiation of implicit contracts (D86) | change in worker expectations (J29) |
| change in worker expectations (J29) | support for legal reforms leading to explicit employment contracts (J53) |
| less severe depression (I12) | maintenance of implicit contracts (D86) |
| maintenance of implicit contracts (D86) | supportive environment for corporate welfarism (M14) |
| supportive environment for corporate welfarism (M14) | development of labor laws that complemented these practices (J88) |