Crisis of the locals banks in 1920s: a.
Local banks can better assess the risk level of entrepreneurs compare to outsiders such as state banks. b.
However, as firms grow and build their reputations, in addition to the establishment of the new commercial codes, allow firm to issue corporate bonds and move into direct financing. c.
At the same time, large city banks were expanding their branches and undermine the information rent of local banks and cause many of them to go bankrupt and cause the crisis. d.
However, share of lending also grew as the market share of large banks grew. This also undermines the relevance of local culture. 2)
The occurrence and disappearance of dual labor structure: a.
In the rural area, heads of household provide for the less productive members of their families and only use them during planting and harvesting seasons. This created the slack labor. b.
Also, at the time, transportation cost was high while personal security was lower. The risk-averse agents preferred the provision of household heads instead of working in the urban area and therefore stayed home and submitted to the authoritarian control of the household heads. c.
In the city, as modern industries such as cotton spinning grew, the need for labor force increased. This increased their real wage. Also, since the transportation system was not as developed, these urban laborers enjoyed location rent. d.
However, as real wage increases pass the reservation wage level, it attracts more and more rural workers. Also, as the transportation system develops and decreases the costs and risks of commuting to the urban area, there was an inflow of labor into the cities where the manufacturing plants are. This increase the supply for labor and undermine the dual labor structures. e.
Also, as the real wage increases, many firms move toward automation processes to decrease labor costs. This decreases the demand for labor. f.
The combination of increasing supply and decreasing demand for labor resulted in an outflow of labor from the urban areas. 3)
Why is building internal labor beneficial during the 1920s and after WWII: a.
Internal labor market is where firms hire fresh graduates and trained them within the company to build up firms-specific human capital. b.
Stable growth of the heavy industries faced with tight amount of skilled labor. Also, since skills from Japanese traditional craftsmanship did not fit the need for these sectors, firms needed to train unskilled workers. c.
Since the firms with modern technology were minority, skilled tended to be firm-specific instead of industry-specific. d.
Also since employees were afraid of hold-up problems, firms sought fresh graduates and trained them for long-term employment. 4)
Structure of labor in manufacturing sector: