JAPANESE FIRMS INVEST IN HUMAN CAPITAL
AS A RESULT OF JAPAN'S UNWRITTEN LIFETIME EMPLOYMENT POLICY,
NOT BECAUSE THE EXTERNAL LABOR MARKET IS CONSTRICTED
In a Columbia Law Review article published in 1999 -- "Lifetime Employment: Labor Peace and the Evolution of Japanese Corporate Governance" -- authors Gilson & Roe maintain that the Japanese practice of constricting the external labor market is responsible for firms' willingness to invest in human capital. They specifically reject the proposition that Japan's institution of lifetime employment could be the impetus for such corporate outlay. It is contended here, however, that social norms, coupled with a divergent development of Japan's employment law, gave rise to its lifetime employment policy, and that this resulting policy accounts for employers' willingness to invest in human capital. A closed market is the result -- not the cause -- of corporate investment in employees.
HISTORICAL EVOLUTION OF LIFETIME EMPLOYMENT
Although lifetime employment has become a fixture in Japan's body of employment policy and practice, this system was only first identified in 1958. The concept can basically be described as follows:
Workers become employed right after their graduation from school with a particular company. The employer will not lay off his workers if possible even in the course of depression. The employee in turn will not quit his job at this company but tend to continue working there until he reaches his retirement age.
Gilson & Roe discount the validity of "seeking the historical roots of lifetime employment," since they believe such an analysis runs the "risk of seeing causation where there is none." Many commentators, however, who have toiled in this regard, apparently believe otherwise. After a belabored analysis doubting the reliability of historical inquiry, the authors concede that the literature attests to the fact that, at some point during...