Labor market dynamics and offshoringan empirical application to Japan

Resumen

This thesis encompasses two linked sets of studies with an empirical application to Japan, an interesting yet sometimes overlooked subject of study. The goal of the first part of the thesis is: (i) to offer a short account of the Japanese labor market and its peculiarities; (ii) to review the main views on the macroeconomics of labor markets; and (iii) to carry out an empirical study relying on one of these approaches, the Chain Reaction Theory (CRT) or prolonged adjustment view. Our empirical analysis presents two alternative multi-equation structural models featuring different characteristics of the labor market for the period 1970-2008. Focusing then on the Japanese lost decade and the mild economic upturn that followed, we conduct dynamic simulations for two well-defined subperiods: 1990-2002 and 2002-2007. These years coincide with a minimum and (historical) maximum of the unemployment rate during the last two decades: 2.1% in 1990 and 5.5% in 2002. The results of our simulations lead to similar conclusions for both these models. First, the steep rise in unemployment during the lost decade was essentially due to the damaging effects of the ever-increasing public debt as a major source of labor market inefficiencies, and to a low productivity growth rate. And second, we find the fall in labor union power to have a significant easing effect on the unemployment rate, but also to be a major driver in the apparently eroding pattern of the labor income share in more recent years. The second part of the thesis takes on the subject of offshoring in a series of interrelated chapters. Indeed, the most recent and heated discussions about economic policy worldwide have to do with offshoring, usually with a negative slant on it. The purpose of this part is: (i) to review the most conventional indices on offshoring the economic literature has so far produced, and employ them to provide an overview of the extent of the phenomenon for a group of countries; (ii) to carry out the analysis of the employment and productivity effects of offshoring at the aggregate level of the industry for Japan, relying on panel data techniques; and (iii) to go deeper into the employment effects but now using an industry-by-industry approach. Our results can be summarized as follows. First, contrary to common beliefs, our data reveal that offshoring is not exclusive of large developed economies. Further, we highlight the continuing prominence of the manufacturing over the services sector, and observe that while services offshoring is on the rise, it still represents a small fraction of total offshoring. Second, our estimations suggest that we should expect, on average, a positive effect of services offshoring and a negative effect of materials offshoring on employment. However, the effects are rather negligible and only amount to a small fraction of the change in employment. On the other hand, positive effects on the growth rate of productivity are found as a result of both types of offshoring, with larger effects from services.