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A model of temporary and permanent jobs and trade

Author

Listed:
  • Machikita, Tomohiro
  • Sato, Hitoshi

Abstract

This paper proposes a monopolistic competition model in which firms facing demand uncertainty use both permanent and temporary workers to evade the labor adjustment costs associated with permanent workers, and explores links between the demand for temporary and permanent workers and economic globalization. The model highlights intensified product market competition as a driving force behind the shift in demand from permanent to temporary workers. In addition, our model shows that international outsourcing effectively reduces labor adjustment costs, which decreases the demand for permanent workers. We empirically test these links using industry-level data from the Japanese manufacturing sector. We find a positive correlation between foreign outsourcing and the replacement of permanent workers with temporary workers in domestic production. Additionally, we find that industries losing their global share of value-added tend to decrease their employment of permanent workers and increase the proportions of temporary workers.

Suggested Citation

  • Machikita, Tomohiro & Sato, Hitoshi, 2016. "A model of temporary and permanent jobs and trade," IDE Discussion Papers 655, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper655
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Labor market; Temporary workers; Permanent workers; Outsourcing; International trade; Monopolistic competition;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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