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

18. Imports from China, firm growth and survival and skill upgrading: Evidence from Belgium G. Mion (LSE), H. Vandenbussche (UCL), L. Zhu (Kul)

19. Data ’96-2006 Education as a measure of skill at the firm-level allows within firm skill upgrading Firm-level measure of outsourcing Distinction between final and intermediate imports Methodology We distinguish China from other low wage countries Instruments for Trade (tariffs and exchange rates) Controls for innovation Notes

20. Stylized facts: (1) Declining manufacturing employment

21. Stylized facts: (2) Increasing share of non- production workers

22. Stylized facts: (3) More skilled labour force in manufacturing

23. Stylized facts: (4) Rising manufacturing imports from China and other low-wage countries

24. Literature: Schott (2008) showed that China’s export similarity with OECD countries is higher than that of other non-OECD countries and this similarity is growing much faster than any other countries. This finding highlights that firms in developed countries are much likely to face competition from Chinese exports rather than that from other low-wage countries' exports, since the later have much less similarity with their productions.

25. Data: main variables used Trade variables: - Industry-levl import share - Firm-level outsourcing of finished goods - Firm-level outsourcing of intermediate goods (similarly defined) Firm characteristics: -Size (log empl.) -Average wage (wage bill/empl.) -Labor productivity(value added/empl.) -Capital intensity (tfa/empl.) -Intangible capital intensity (itfa/empl.)

26. Trade and employment change (BJS, 2006) Econometric model: =firm characteristics: size, labor productivity, capital intensity, intangible capital intensity and average wage =industry-level import share of different country groups =firm-level outsourcing to different country groups (finished and intermediate) =time fixed effects =firm fixed effects

27. Table 2: trade and employment growth OLS IV industry IV industry and IV firm

28. Table 3: trade and share of production workers OLS IV industry IV industry and IV firm-level trade

29. Table 4: trade and skilled workers OLS IV industry IV industry and IV firm-level

30. How much can Chinese imports explain skill upgrading? Chinese imports alone can explain around 30% of the total skill upgrading in Belgian manufacturing during the period of 1996-2006

31. Trade and firm death We estimate a linear probability model: Whear Death is a dummy variable denoting firm death. We defined a firm as dead if it disappears from the data set in the next year or for the next two years.

32. Table 5: Trade and firm death (1)

33. Table 6: Trade and firm death (2)

34. Conclusions Imports from low-wage countries are important in explaining employment growth in Belgian manufacturing imports from China play more important role than that from other low-wage countries. Firm-level outsourcing to China leads firms to upgrade their occupational composition of employment, although it does not affect the level of employment significantly. Import competition from low-wage countries/China only has weak impact on firm death