Economists have studied extensively the direct impacts of natural disasters on local labour markets, but less is known about the knock-on consequences for wider markets. This column argues that although supply chain disruptions caused by the Great East Japan Earthquake increased job separation and geographical shifts, the effects on employment status were weak. The long-run impact of the earthquake on the labour markets outside of the directly affected areas appears to be limited, despite public concerns at the time.
On 11 March 2011, the Great East Japan Earthquake and the subsequent tsunami left over 20,000 people either missing or dead, and destroyed many buildings on the east coast of the Tohoku and Kanto regions. Labour economists have documented the direct impact of the disaster on the local labour market. Higuchi et al. (2012) showed that the number of recipients of unemployment insurance (UI) benefits increased drastically in the three most affected prefectures (Iwate, Miyagi, and Fukushima). They also pointed out that the young population migrated out to other regions in Japan, and highlighted the mismatch between job seekers (many of whom wished to work in the food manufacturing sector or obtain clerical jobs) and vacancies (mostly for professional workers in the healthcare or construction industries). Genda (2014) focused on individuals who suffered from direct damage to their workplace or residence, and found that youths and less-educated workers were vulnerable to the damage. Furthermore, those who were forced to relocate tended to have difficulty in finding a new job and remained unemployed.
In addition to these direct effects, businesses in other areas of Japan were also affected. It is said that the production decline caused by supply chain disruptions led to a substantial reduction in labour demand, at least in the short run. During the months following the earthquake, the media reported the growing concern of the public about the widespread negative effects on employment, especially for non-regular workers, not limited to the east Tohoku region.
Decline in output caused by supply chain disruptions
Many studies have documented the indirect effect of the Great East Japan Earthquake on production through supply chain disruptions. They employed different approaches—Okiyama et al. (2012) used multiplier analysis, Tokui et al. (2015) and Dekle et al. (2016) utilised the inter-regional input-output table, and Cavalho et al. (2014) analysed micro-data on inter-firm transaction networks—but most studies found substantial impacts on output in areas not directly damaged by the earthquake and tsunami. For example, Tokui et al. (2015) showed that the estimated production loss caused by the supply chain disruptions would be a maximum of 0.41% of Japan's GDP.
Given the significant effect on production output, it is natural to think that there might be some effects on labour markets caused by this decline in output. However, probably due to the limitation of data availability, the above-mentioned studies did not analyse the effect on employment of the affected firms. In contrast, early labour economics studies such as Higuchi et al. (2012) have mainly focused on more direct effects in the physically damaged areas.
Implications for labour markets outside of the directly damaged areas
My recent study (Kondo 2017) intended to fill this gap in the literature by examining individual workers' data taken from the Employment Status Survey 2012. Utilising this large cross section survey of all households in Japan, I estimated the effect of the labour demand shocks caused by the Great East Japan Earthquake on workers' job separation, inter-industry and geographical mobility, and employment status in the prefectures not directly damaged by tsunami. In particular, I focused on the shocks caused by supply chain disruptions, defined in two different ways: individuals' self-reported data on the repercussions of the earthquake on the job held at that time, and estimated production decline caused by the supply chain disruptions at the industry-prefecture level.
According to the self-reported data, about 5.5% of workers experienced changes such as temporary suspension, shorter working hours, and lower earnings, even after excluding the six prefectures directly affected by the tsunami. Yet, we must be careful in interpreting such self-reported data, because some workers may attribute negative shocks actually caused by other factors to the earthquake. To mitigate this problem, I calculated the upper bound of the production decline based on the inter-prefecture input-output table.
First, I confirmed that the temporary decline in labour demand actually induced workers to quit their jobs. Except for regular employees who experienced temporary suspension, the job separation hazard is positively correlated with both indicators for the self-reported repercussions and the estimated upper bound of the production decline at the industry-prefecture level. The Great East Japan Earthquake increased the job separation rate not only in the areas directly damaged, but all over Japan—especially areas and industries that had more transactions with the directly damaged area.
The next question would be where did the workers who left their jobs go—to industries or prefectures that were less affected? Or did they become unemployed? I found no increase in inter-industry mobility, but some increases in geographical mobility to other prefectures. Regarding whether some of the job leavers became unemployed, the results are mixed. The self-reported repercussions are significantly correlated with employment status. Those who were affected were less likely to be employed or in regular employment and more likely to be unemployed or out of the labour force. By contrast, the estimated production decline at the prefecture-industry level is uncorrelated with employment status. This result may imply that the self-reported data are biased.
The long-term impact seems to be weak
Although the supply chain disruptions caused by the Great East Japan Earthquake increased job separation and moves across prefectures, the effects on employment status are weak and not robust. This implies that the impact of the Great East Japan Earthquake on the labour market outside of the directly affected areas is limited in the long run, despite the public concern prevalent after the disaster.
Editors' note: The main research on which this column is based first appeared as a Discussion Paper of the Research Institute of Economy, Trade and Industry (RIETI) of Japan.
This article first appeared on www.VoxEU.org on November 21, 2017. Reproduced with permission.