Continuity and Change in the Japanese Economy: Evidence of Institutional Interactions between Financial and Labour Markets

The political economy of Japan has been characterized by tightly knit institutions of relational coordination such as the main bank system, lifetime employment, long-term supplier relations in intermediate product markets, and neo-corporatist business-labour-government relations in policymaking. By the late 1990s, however, diverse patterns of organizing have become evident, with the growth of new stock exchanges and venture capital, the development of atypical forms of employment alongside lifetime employment, and the breakdown of the coordinated Shunto wage bargaining system. This chapter examines the nature of institutional change and continuity in the Japanese economy. It presents a framework for analysing institutional change in a specific direction towards liberalization. This is used to examine the nature of institutional changes in capital markets and labour markets separately, before analysing interactions between these two market institutions. Institutional change is much more extensive in labour markets than in capital markets, and that the interaction between the two institutional domains has been somewhat limited.