6;duality’ developed in response to increased demand for better-educated and trained workers by large-scale industries. The reason being that industrialization reached the stage whereby heavy and chemical industries were the main focus, therefore large-scale industries were willing to pay higher wages to employ better-educated labourers and keep them to internalize investment in the skill formation (Paine, 1971).To explain for the ‘duality’ of the manufacturing sector in Japan, two theories of dual structure could be of help. The first being Miyazawa-Shinohara’s capital concentration hypothesis, which attributes wage differentials to the differences in average productivity, which are in turn, explained by differentials in capital intensity due to imperfection in capital markets (Odaka, 1967 p.58). This hypothesis suggests that larger firms were able to obtain bank loans relatively easily as compared to smaller firms. Moreover, large firms incur a lower cost of capital then smaller firms henceforth with adequate financial capability it was possible for large firms to introduce relatively capital-intensive methods of production thus leading to higher levels of labour productivity. However, this hypothesis required the assumption that large firms draw from a different labour market to small firms to explain persistent wage differentials (Minami, 1994 p.244). The second theory is the skill concentration hypothesis developed by Teranishi and Minami, whereby they attempted to explain the ‘duality’ in terms of skilled and unskilled labour. They argued that large firms employ primarily skilled workers while small firms were mainly unskilled workers. In addition, Teranishi and Minami believed that the increase in supply of unskilled labour in the 1920s and the relatively decline in wages to that of skilled labour led to a lower average wages for small firms than large firms. As a result, wage differentials dev...
