The Impact of Outsourcing on the Japanese Economy
Chapter 6: The Impact of Production Fragmentation on Skill Upgrading
INTRODUCTION Chapter 5 presented some evidence of a shift over the last two decades in the skill composition of employment in favour of skilled workers in Japanese manufacturing. The present chapter empirically examines the role that production fragmentation has played in this labour market adjustment. The rise of production fragmentation has the effect of shifting labour demand away from less-skilled labour towards skilled labour within the manufacturing industry (or within the firm), since domestic production increasingly specializes in higher skilled and technology-intensive tasks. As a result, demand for skilled workers is pushed up, consequently raising the relative wage of skilled workers while suppressing demand and wages for less-skilled workers. Feenstra and Hanson (1996, 1999, 2003) have demonstrated that fragmentation trade contributed 15–24 per cent of the total increase in the wage share of skilled workers in US manufacturing during the 1980s. Following these studies, similar analyses have been undertaken for a range of other developed countries: Strauss-Kahn (2004) for France, Hijzen et al. (2005) for the UK, Helg and Tajoli (2005) for Germany and Italy, Hsieh and Woo (2005) for Hong Kong, Egger and Egger (2003) for Austria and Hansson (2000) for Sweden. Broadly speaking, the findings of these studies are consistent with the Feenstra-Hanson results for US manufacturing. However, the findings of the few available studies on Japanese manufacturing are inconclusive about the skill upgrading effects of production fragmentation (Sakurai, 2000; Ito and Fukao, 2005; Sasaki and Sakura, 2005). This is rather surprising, given the active involvement of...
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