A model of temporary and permanent jobs and trade

Tomohiro Machikita and Sato Hitoshi

No 655, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

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.

Keywords: Labor market; Temporary workers; Permanent workers; Outsourcing; International trade; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: F16 F66 J23 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-int
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 655. 2016-12

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