The share of manufacturing employment in Japan's total workforce has declined substantially since 2000, while the fraction of manufacturing firms that source foreign inputs has increased. This paper empirically examines the relationship between these two trends. Specifically, we study if Japanese manufacturing firms have experienced servicification - an increase in the shares of service employment or value-added in response to their increasing global sourcing of inputs. We also examine to what extent the servicification of manufacturing firms, if any, contributed to the structural shift of the Japanese economy towards the service sector.
Analyzing the firm-level data from the "Basic Survey of Japanese Business Structure and Activities" over the 2000-2015 period, we find that the labor shares of the non-manufacturing departments or establishments of Japanese manufacturing firms have been gradually increasing, while the shares of non-manufacturing value-added have remained unchanged over the same period. Offshoring firms tend to have a higher non-manufacturing labor share, but their non-manufacturing value-added share does not exceed that of non-offshoring firms on average. In summary, we cannot conclude that Japanese manufacturing firms have experienced "servicification," as they are still highly dependent on manufacturing value-added.