Global Competition and Labor-intensive Production in SMEs: Evidence from Japan
(Previous title) Global Competition, Worker Retention, and Immigrant Employment in Manufacturing SMEs*

In this paper we analyze the effect of perceived global competition on firms' reorganization plans, allowing for heterogeneous effects across firms. Using detailed firm-level survey data on Japanese manufacturing small and medium-sized enterprises (SMEs), we demonstrate that these firms have become more labor-intensive. Manufacturing SMEs recognizing fierce global competition are more willing to consider replacing native production workers with low-skilled immigrants although reluctant to increase investment in research and development (R&D). We find this effect to be significantly stronger for firms with a high production worker ratio and less initial wage growth. As a channel between perceived global competition and future immigrant employment plans, the difficulty in retaining young workers plays an important role, while the decline in future R&D investment is directly related to the perception of increased global competition.

* We revised this discussion paper with the new tile in January 2022. This paper was previously circulated under the title " Global Competition, Worker Retention, and Immigrant Employment in Manufacturing SMEs."