Global competition and labor-intensive production in SMEs: Firm-level evidence from Japan at the threshold of the lost decades

Abstract

We analyze the effect of perceived global competition on firms’ reorganization plans. Using firm-level survey data from Japanese manufacturing SMEs in the late 1990s, we find that manufacturing SMEs perceiving intense global competition were more likely to consider hiring low-skilled immigrants despite being reluctant to increase R&D investment. This suggests that these SMEs were shifting towards becoming more labor-intensive organizations. Additionally, the positive relationship between perceived global competition and the intention to hire immigrant workers is partially mediated by difficulties in retaining young workers.