eloped and led to differentials in both the capital-labour ratio and labour productivity because large firms found it profitable to employ labour-saving technology but small firms did not. This second theory is a direct opposite of the Miyazawa-Shinohara’s hypothesis whereby differential in capital-labour ratio leads to differential in labour productivity thus resulted in wage differential. For this skill concentration hypothesis, the assumption that unskilled workers cannot be substituted for skilled workers had to be made (Minami, 1994 p.244). The main idea that both theories may be driving at is that a large-scale capital-intensive firm requires better-educated and trained labour to operate new technology machinery and require a stable supply of workers for production operations. But the labour market had only a limited supply of workers with appropriate skills. This led to an increase in the demand for such workers and resulted in the development of the nenko joretsu system. The nenko joretsu system is whereby large firms select and train certain new entrants to the labour force, offering them guaranteed wage increases as their length of service increased (Paine, 1971 p.213). In conclusion, there is some truth in both assumptions made in the respective theory. However, both assumptions probably over-simplify the reality. In my own perspective, there exist a combinations of factors that could explain for the ‘dual structure’ within the manufacturing sector although an abundance of labour and the ability to pay of large-scale firms are consistent with the concept of wage differentials. The abundance of labour does not last forever so as labour surplus decrease, both large and small firms would compete for new workers. Moreover, as technology advances, the introduction of automated production process does not necessary requires skilled workers. Instead the job scope becomes a routine and unskilled workers would be mor...
