Abstract
This article examines how organizational environments affect labor market processes in Japan. I hypothesize that labor market inequality is generated through workers being “positioned” in either domestic or in foreign firms. I apply the concept of social versus economic exchange to distinguish the nature of transactions between domestic and foreign firms. I argue that foreign firms operate under an institutional context that is conducive to the economic mode of exchange, which has enormous consequences for their personnel practices and reward systems. Using a dataset of Japanese workers collected in 2000, I examine the extent to which employment practices in foreign firms deviate from the benchmark features observed in the Japanese labor market. My results confirm that employment in foreign firms significantly affects career outcomes. The highcommitment culture commonly associated with the Japanese workforce is an outcome of the organizational environment. I find little evidence of Japanese employment practices (e.g., seniority and lifetime employment) operating within foreign firms. I also find that workers in foreign firms trust their employers less and have a higher propensity to quit their jobs. My findings suggest that workers in domestic and foreign firms are subject to vastly different sets of institutional constraints.
