Academic journal article Contemporary Economic Policy

Exports and Jobs: The Case of Japan, 1975-2006

Academic journal article Contemporary Economic Policy

Exports and Jobs: The Case of Japan, 1975-2006

Article excerpt

I. INTRODUCTION

The effect of international trade on employment is one of the central concerns of business circles and policy makers in many countries. (1) Financial turbulence in 2008, its effect initially expected to be relatively small, severely affected countries that rely on exports. It is said that the effect mainly comes through the trade channel and originated from "the collapse in demand for consumer durable goods and capital goods in (non-Asian) advanced economies" (IMF 2009, 71). (2)

A number of studies have discussed the effect of trade on employment. However, there are at least three dimensions to be further investigated. First, previous studies on trade and employment focused mainly on the effect of imports rather than exports (Revenga 1992). (3) For countries with large trade deficits such as the United States, the effect of import competition from low-wage countries can be a major concern. On the other hand, for countries with large trade surpluses such as Japan and China, the effect of exports on employment is also an important question because the contribution of foreign demand to domestic employment could be large. The study of the effect of exports on employment thus contributes to the current and future prospects of those countries that rely on exports.

Second, existing literature has focused on goods exports, despite the fact that services trade has been increasing faster than goods trade in the last few decades (Urata and Kiyota 2003, Figure 1). We thus do not know anything about how large the effect of services trade is on employment. (4) If the effect of services trade is not small, the earlier studies might underestimate the effect of trade on employment.

[FIGURE 1 OMITTED]

Finally, the earlier studies focused mainly on the effect on the industry's own employment and did not pay much attention to the effect on other industries' employment. (5) To examine the effect of trade on employment, previous studies regressed sectoral employment on sectoral trade such as the import penetration ratio. (6) Note that the demand for labor can be affected not only by the industry's own exports (i.e., direct effect) but also by the exports of other industries through intraindustry linkages (i.e., indirect effect). If the indirect effect is not small, the previous studies overestimated the effect on the industry's own employment, while underestimating the effect on other industries' employment.

This paper examines the following three questions: How much employment is created by an increase in goods and services exports? Is the indirect effect of exports small? Which industries depend heavily on exports? (7) To estimate both the direct and indirect demand for labor from goods and services exports, this paper uses the Japanese input-output (IO) table for 1975-2006, which was recently developed as a part of a research project of the Research Institute of Economy, Trade and Industry (RIETI) and Hitotsubashi University. The I0 table consists of data for 59 goods and 49 services industries available on an annual basis for 1975-2006, which enables us to capture detailed intraindustry linkages. Following Feenstra and Hong (2010), we call employment created through both direct and indirect effects "implied employment."

A number of studies have discussed the effect of trade on the Japanese labor market. Tachibanaki, Morikawa, and Nishimura (1998) examined the effect of manufacturing imports from Asian countries on employment and wages in Japan. Tomiura (2003) used more detailed data to extend Tachibanaki, Morikawa, and Nishimura (1998). Sakurai (2004) examined the effect of import penetration on manufacturing employment using the Japanese IO table for 1980 and 1990. Although these studies made significant contributions to understanding the effect of imports on employment in Japan, none of these studies addressed simultaneously the effect of exports, services trade, and the indirect effects. …

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