Reconsidering the Determinants of International Labor Mobility

ZHANG Hongyong
Fellow, RIETI

"Japan Revitalization Strategy" and the acceptance of foreign workers

On June 24, 2014, the Japanese government adopted the Revision of Japan Revitalization Strategy at a Cabinet meeting. The strategy includes measures to increase the numbers of foreign workers in Japan, including a review of the technical intern training program (TITP), the use of foreign human resources in the construction and shipbuilding sectors for the 2020 Summer Olympics and Paralympics in Tokyo, and the acceptance of housekeeping support workers in the National Strategic Special Economic Zones. Under the TITP, steps such as the expansion of occupations for technical intern training, the extension of technical intern training periods (from three years to five years at maximum), and an increase in the number of trainees accepted will be put into practice.

The development of this environment for accepting foreign workers is seen as facilitating the expansion of employment of overseas workers, including Chinese (Note 1). However, there is no doubt that the acceptance of foreign workers is influenced not only by the conditions in the host country, but also by factors in the countries from which they have come.

This column provides some perspectives regarding the international movement of workers based on analysis using data in China, which is a source of workers going overseas.

Dispatch of workers

According to statistics from the World Bank, China ranks fourth (approximately 1.88 million people) after India, Bangladesh, and Pakistan as a source of workers going overseas in 2010, based on the annual flow of immigrants (Note 2).

The methods of workers being sent from China can be classified in principle into the following two categories: "foreign labor services" and "foreign engineering projects."

Foreign labor services mean providing labor by dispatching Chinese workers based on an agreement concluded between a company or an individual in a foreign country that is able to hire foreign workers and a company in China. Workers are employed in the industry sector, and, according to the job description and the period set forth in the agreement, they receive a predetermined payment and return to China after fulfilling the agreement (Note 3).

In a foreign engineering project, a company or a group in China provides labor that accompanies a contract for a construction project in a foreign country, Hong Kong, Macau, and Taiwan, or that alternatives accompany the export of equipment and technology. The nature of the contract for construction work includes research, design, construction, procurement and installation of equipment and raw materials, consulting, and management.

Figure 1 shows changes in the dispatch of workers from 1984 to 2012. The values represent the number of workers living overseas at the end of each year (the same applies below). The dispatch of workers based on foreign labor services increased sharply in the 1990s. Although the rate of increase slowed down temporarily in the 2000s, it reached approximately 510,000 people in 2012. Meanwhile, the number of workers dispatched based on foreign engineering projects increased sharply after 2001 when China became a member of the World Trade Organization (WTO), and reached approximately 340,000 people in 2012.

Figure 1: Dispatch of Workers (Unit: 1,000 people)Figure 1: Dispatch of Workers (Unit: 1,000 people)
Source: China Statistical Yearbook 2013, National Bureau of Statistics of China

Distribution of workers concentrated in Asia and Africa

The regional distribution of workers is considerably biased (Table 1). For foreign labor services, approximately 64% of workers were in Asia in 1992, rising to more than 80% in 2012. Geographically, workers tend to concentrate in Asia (Note 4). The reason for this appears to be increasingly strong economic ties in East Asia, including Japan, China, South Korea, and Southeast Asia since the 1990s through foreign trade and direct investment.

Table 1: Distribution of Workers (Unit: %)
RegionsForeign labor servicesForeign engineering projects
Latin America1.
North America6.

Source: China External Economic Statistical Yearbook, 1994, 2003, National Bureau of Statistics of China, China Statistical Yearbook 2013, National Bureau of Statistics of China

In contrast, labor mobility based on foreign engineering projects shows a different pattern from that under foreign labor services. Although approximately 40%, 30%, and 20% of workers were distributed in Asia, Africa, and Europe, respectively in 1992, that share rose to approximately 45% in Asia and Africa, while it declined to 3% in Europe. The table indicates that the acceptance of workers increased very noticeably in Africa. It seems that in recent years, the dispatch of workers have been increasing with the efforts of China to secure energy resources and export infrastructure and systems in Africa.

Gravity equation and labor mobility

The gravity equation states that bilateral trade increases when the scales of the two trading economies are large and decreases with their geographical distance from one another. In fact, the gravity equation is capable of explaining not only trade in goods, but also the movement of all cross-border capital, services, and people (Note 5).

In a recent study, Lewer and Van den Berg (2008) found through empirical research that immigration among the Organisation for Economic Co-operation and Development (OECD) countries can also be explained by the gravity equation.

This column estimates the gravity equation after the manner of Lewer and Van den Berg (2008), using panel data for the movement of workers from China to 186 countries between 1992 and 2012.

Table 2 shows the result when defining labor mobility from China to other countries as an explained variable. In foreign labor services, the larger the size of the population (the size of the labor market) in the host country, the greater is the dispatch of workers to that country. Meanwhile, the dispatch of workers declines as the greater the distance is between the host country and China, yet the dispatch of workers to countries and regions that border China is also limited. The larger the per-capita gross domestic product (GDP) of the host country, the greater is the movement of workers. In addition, countries that use Chinese as their national language or that have a network of Chinese immigrants also attract workers. Although the dispatch of workers to countries that have concluded a free trade agreement (including service trade) with China is limited, Japan accepts many Chinese workers with its TITP.

Table 2: Determinants in the Overseas Movement of Workers
Foreign labor servicesForeign engineering projects
Logarithmic value of the population size0.299***
Logarithmic value of distance-1.580***
Relative per-capita GDP0.060***
National border dummy-0.280*
Chinese language dummy1.710***
Logarithmic value of immigration stock (1990)0.214***
Free trade agreement dummy-0.568**
Japan dummy1.828***
Overseas construction contract promotion policy dummy-0.153
Year fixed-effectYesYesYesYesYesYes
Number of samples3,7973,7973,7973,7973,7973,797
Note: Estimation is based on the Poisson pseudo-maximum-likelihood (PPML) method. ***, ** and * indicate that the values are significant at a 1% level, a 5% level and a 10% level, respectively. Values in parentheses are a standard error to address heteroscedasticity.

Meanwhile, under foreign engineering projects, even if the distance is great, there is no statistical evidence of a decline in the dispatch of workers, contrary to expectations from the gravity equation. Workers sent under foreign engineering projects are often moved to regions with small immigrant communities (Africa, for example). Moreover, many workers are sent to countries targeted under policies promoting overseas construction contracts (Note 6).


There are various determinants in international labor mobility. It is influenced by factors such as the size of the population of the source country and the host country, the distance between them, relative wages, the network of immigrants, and government policies. These determinants could vary depending on the type of job and the area of work. In Table 2, for example, the population size of the host country is a more important determinant in foreign engineering projects than under foreign labor services, while the explanatory power of distance and relative wages between the two countries is weaker. Policy devices according to the type of job and the area of work are required when reviewing the TITP and using foreign human resources in the area of construction and shipbuilding.

In addition, as Table 2 shows, the coefficient of the Japan dummy where the TITP is implemented and the foreign engineering projects promotion policy dummy have high statistical significance and a very strong explanatory power. The overseas labor policies of the source country and the host country and bilateral agreements between them are important (Note 7). The economic partnership agreement (EPA) which Japan has concluded with the Philippines and Indonesia in recent years includes the acceptance of human resources in the nursing care area. If the policy and the environment for receiving foreign workers are developed, while paying attention to demand in the domestic labor market and relative wages, the policy is likely to be highly effective.

July 1, 2014
  1. ^ According to the Situation of Notified Foreign National Employment Status of the Ministry of Health, Labour and Welfare, the number of foreign workers was approximately 720,000 people as of 2013. By nationality, Chinese workers have the largest share at approximately 300,000 people, representing 42% of the total number of foreign workers. By resident status, the number of foreign workers in the "technical intern training" was approximately 136,000 people, of whom trainees from China accounted for 70%. Foreign workers in the "specialized and technical areas" accounted for approximately 132,000 people (Chinese comprise approximately 70,000 people).
  2. ^ The source is the World Development Indicators (WDI) of the World Bank. The term "immigrants" here means the population whose country of birth and country of residence are different. Therefore, it includes foreigners with permanent residency, temporary migrant workers, foreign spouses and family members, and refugees, etc. International statistics confined to labor are very limited at the moment. In this paper, the analysis subject is temporary labor mobility.
  3. ^ Chinese workers who arrived in Japan though the TITP are included in this category.
  4. ^ In 2012, workers in Japan (approximately 173,000 people) made up approximately 33% of those in Asia.
  5. ^ For the overview of the gravity equation and its basic estimation methods and development in recent years, please refer to International Trade and Trade Policy: Research Notes of Ayumu Tanaka, Research Associate, RIETI ( (in Japanese)).
  6. ^ To promote contracts for overseas construction projects, the Ministry of Commerce of the People's Republic of China published the List of Industrial Trends of Externally Contracted Constructions by Country in six areas, including transportation infrastructure, in 28 countries centering on developing nations in 2008 and 2010.
  7. ^ For bilateral agreements and overseas labor mobility in Southeast Asian countries, please refer to the Sato and Machikita (2013) listed below.

July 1, 2014