3. Effect of Trade on Employment

This chapter analyzes the effect of increased trade between 1995 and 2005 on employment in 55 manufacturing industries based on input-output analysis, focusing on the quantitative impact on the number of workers with different skills. The effect of trade between 1995 and 2000, for example, is estimated as the difference between the actual employment and the counterfactual employment that would have been realized if trade had not changed after 1995 in terms of import ratio and export ratio. The analysis reveals that imports tend to increase in production labor-intensive industries and exports tend to increase in technical labor-intensive industries, implying that trade was consistent with the HOS model with skill intensity being an index of Japan’s comparative advantage. It also reveals that the negative effect of increased imports is larger on production workers than on nonproduction workers, whereas the positive effect of increased exports is larger on nonproduction workers than on production workers in the aggregated manufacturing industry, suggesting a non-neutral or biased effect of trade. It is derived from this result that trade during this period caused a relative demand shift toward skilled labor in the Japanese manufacturing labor market.