Discussion Paper No.1309

Abstract :
 This paper examines the effect of imported intermediate inputs on local Japanese labor markets and the impact of an agglomeration economy on this trade exposure. An agglomeration economy might increase productivity, but the specific local labor market might be hard-hit when a large company withdraws from the market. This paper observes that rising inputs from abroad decrease the demand for employment of workers who have attained high and low levels of education and increase the demand for short-time workers. However, the agglomeration of manufacturing mitigates this trade exposure. This effect spills over to the non-manufacturing sector. Furthermore, this paper divides regions by R&D intensity. R&D eliminates the downward trend in the demand for less-educated workers in manufacturing in rural areas where manufacturing agglomerates. However, the results are not conclusive and are not the direct effect of R&D when imported intermediate inputs are on the rise because imported inputs highly correlate with the cross-term of imported inputs and R&D. Regarding wages, increasing imported intermediate inputs does not exhibit a clear effect on wages in manufacturing, although rising inputs from abroad decrease wages for short-time workers in all industries.

Keywords : YGeography of trade,Agglomeration economy,Labor demand,Offshoring
JEL classification: J23,J24,J31