Wage and Employment of Japanese Subsidiaries in Asia: A survey on labour cost adjustments

Jonas Hjort, Yukiko Saito, Yasuka Tateishi and Linda Wu

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Japanese firms have long benefited from foreign direct investment (FDI) in Asia, relocating labour-intensive production to lower-wage countries. In the past decades, however, wages in many Asian host countries have risen rapidly, while wages in Japan have remained stagnant, narrowing the wage gap and increasing the cost of offshore production. This study examines how these shifting cost dynamics affect investment decisions, drawing on 20 years of administrative data and an original survey of Japanese FDI firms conducted in November 2024. The data reveal a sharp narrowing of wage differentials alongside slower new investment and rising exits. Survey evidence indicates that most firms either take no action or, at most, make intensive-margin adjustments on increasing labour costs. While rising labour costs are not the dominant reason for withdrawal, subsidiary wage growth is positively associated with exit due to labour cost increases, suggesting that continued wage convergence may contribute to a future downturn in Japanese FDI in Asia.

Pages: 34 pages
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:25090

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