Service Sector Globalization and the Restructuring of Regional Employment

This study investigates the impact of globalization on domestic urbanization and employment structures in the non-manufacturing sector. Despite its significance, this area has been understudied because of data limitations. Diverse transactions and expansion without capital investments make services difficult to capture in official statistics. However, services comprise 80% of employment in advanced economies. While data constraints remain, this study improves estimation precision by using firm-level data on overseas investments and actual domestic employment, rather than relying on proxy allocations based on regional employment shares. The analysis utilizes Japanese data from 2005 to 2020, examined by employment areas, and employs panel fixed-effects models with instrumental variables. In the information and communications industry, globalization is associated with an increase in employment, especially among female, college-educated, and regular employees, driven by inflows and increased labor participation, indicating job creation accompanied by a reallocation of human resources. Conversely, in the academic research and professional and technical services industry, foreign labor substitutes for domestic labor, resulting in lower wages. Meanwhile, the accommodation and food services sector saw employment growth but a decrease in wages, without labor migration. While the manufacturing sector showed few significant effects, beyond these examples, the non-manufacturing sector exhibited diverse spillover effects on employment, mobility, and wages. The pathways through which globalization affects regional communities—such as through the reallocation of human resources and changes in employment conditions—have not been fully captured by conventional manufacturing-focused perspectives.