Trade, Technology, and China's Rising Skill Demand

Abstract

China has experienced rising wage inequality due to rising relative demand for skilled labor. In this paper, we use a sample of 1,500 firms to investigate the impact of trade and technology on China's rising skill demand. We find that export expansion had a negative direct effect (Heckscher-Ohlin type) and a positive indirect effect (export-induced skill-biased technical change) on skill demand; the net effect was found positive and accounted for 5 percent of rising skill demand of the sample firms. We find that technical change in Chinese firms was on average skill-neutral, but majority foreign-owned firms experienced skill-biased technical progress that accounted for 22 percent of the rising skill demand of the sample firms.