1. Lecture 1: Trade and Labour H. Vandenbussche

2. Research questions Link between imports from low-wage countries and firm-level employment growth? Link between imports from low-wage countries and firm-level skill-upgrading?

3. Theory: « Old » Trade Theory Explains why countries trade in DIFFERENT products EU CHINA MACHINES TEXTILES

4. 3. « Old » Trade Theory L: Labour K:Capital EU CHINA Machines Textiles

5. « New » Trade Theory Explains why countries can trade in SAME products but with DIFFERENT factor intensities EU CHINA TEXILES TEXTILES

6. « New » Trade theory L:Labour K: Capital EU CHINA High quality Textiles Low quality Textiles

7. Hypothesis Based on endowment theory we expect firms’ employment growth to decrease with exposure to low wage import competition Firm capital and skill intensity increase employment growth more in industries with low wage import competition

8. Bernard et al. for US plants Share of Imports from Low wage (%) Overall Import penetration (%)Employment change 19771992197719921977-1997 Food991213-3 Tobacco61563-45 Textile1119711-38 Apparel8321332-40 Lumber4918158 Furniture153116 Paper0029241 Printing033442 Chemicals1217 3 Petroleum03109-28 Rubber and Plastics013103349 Leather4202154-69 Stone&Ceramic141220-14 Primary metal141118-39 Fabricated metal14813-4 Industrial Machinery01113114 Electronic15223810 Transport0017274 Instruments03122210 Miscellaneous6192358-9 Average261528-2

9. OLSIV ΔEmpl it:t+5 Log(empl it)-0.158***-0.179*** Age it-0.001***-0.004*** Log(TFP it)0.023***0.026*** Log (K/Prod workers it)0.008***0.007*** Non-prod/Prod wage bills-0.0000010.000001 Other penetration-0.037*** Low wage penetration-0.840***-0.515*** X log(TFP it)0.104-0.289* X log(K/P it)0.181***0.034 X N/P it-0.023-0.150 Firm fixed effYes Year fixed effYes obs323,569246,855 R2R2 0.760.43

10. Conclusion Low wage imports negatively affect employment growth of large firms capital intensive firms suffer less from low imports in terms of employment growth No significant result for skill effects Endogeneity of industry level imports is accounted for using tariff rates

11. Biscourp and Kramarz for France Distinguish between intermediate imports and imports of finished goods Definitions: finished good: when imported good coincides with that of importing firm (~outsourcing) intermediate good: when imported good is different from that of importing firm Include firm-level measures of innovation to control for skill biased technological change

13. Trade and Employment growth Employment Growth From allFrom ECNon-EC OECDLow wage Δ (FG imports/sales it) -0.445**-0.432**-0.352*-0.517** Δ (II imports/sales) -0.224**-0.239**-0.210-0.161 Δ (exports/sales it) 0.103**0.135**-0.0270.054 Δ (local purchase/sales) -0.482** Growth of sales0.745** Weighted by employNo?o R2R2 0.57

14. Trade and Unskilled workers Change in share of unskilled production workers in production workers From allFrom ECNon-EC OECDLow wage Δ (FG imports/sales it) -0.054**-0.028-0.177**-0.072 Δ (II imports/sales) -0.071**-0.070**-0.197** 0.023 Δ (exports/sales it) -0.054**-0.042**-0.094*-0.090** Δ (local purchase/sales) -0.034* Growth of sales0.019** Weighted by employYes R2R2 0.1790.180

15. Conclusion Low wage countries do not have the negative role often described in the press Firms importing finished goods (~outsourcing) destroy more jobs than those importing intermediates conditional on changes in local purchases Exporting positively affects employment growth Results are robust to inclusion of technology variables (Bloom et al) But! No controlling for endogeneity of imports and exports

16. New event! The importance of China since nineties may alter results China’s exports features some overlap with production structures in developed countries i.e. its effect may be more nefast on employment growth but may offer opportunities for skill upgrading

17. Hypothesis 1: Imports from China negatively affect firm employment growth Hypothesis 2: Imports from China result in skill upgrading in developed countries