Choice of Technology and Labour Market Consequences: An Explanation of U.S.-Japanese Differences

Abstract

This paper provides an explanation for U.S.-Japanese differences concerning continuous process improvement, turnover rate, and the level and firm-specificity of human capital accumulation. Connection between continuous process improvement and the firm-specificity of training causes multiplicity of equilibria. In the Japanese equilibrium, each firm conducts continuous process improvement because other firms do so, and as a consequence training provided by such a firm becomes less effective in other firms. This lowers the turnover rate, which, in turn, increases firms' incentives to train employees. In the U.S. equilibrium, training is general, which raises the turnover rate and decreases incentives to train.

Keywords: Human Capital, Multiple Equilibria, Process Improvement, Strategic Complements, Turnover, U.S.-Japanese Differences

JEL Classification: J41, M53, P52