In the past few years, economists have shown an increased interest in the theoretical and empirical analysis of the organization of labor within (mainly large) firms, and in the working of internal labor markets. Advances in the theory of contracts and in agency theory on the one hand, and the increased access to personnel data on the other, have been instrumental to these new developments.

At the same time, the emergence of a dominant Japanese economy on the international economic scene during the 1980s and its relatively good performance in the wake of the two oil shocks attracted considerable interest about the working of the Japanese labor market, both because of Japan's innovative human resource management (HRM) practices and because of the persistently low unemployment rate.

This book tries to bring together these two research threads by focusing on Japanese internal labor market (ILM). Japan is an interesting case, because a well known stylized feature of the Japanese way of organizing labor, especially but not exclusively in large firms, is the importance of long-term employment relationships, steep earnings profiles, and sub-stantial investment in (firm-specific) human capital. All these features are typical of internal labor markets.

Part I of this book (chapters 1–6) looks at important features of Japanese internal labor markets (promotion, earnings profiles, rent-sharing) and tries to relate them to macroeconomic developments such as the slowdown in the rate of economic growth of the Japanese economy and the progressive ageing of its labor force.