High-Tech Clusters, Labor Demand, and Inequality: Evidence from "Made in China 2025"

Abstract

This paper evaluates the impact of high-tech clusters on labor market inequalities by focusing on a place-based industrial policy called “Made in China 2025.” The policy targeted to attract high-tech firms to the industry clusters in the “pilot” cities by providing historical fiscal and regulatory incentives. Leveraging the staggered roll-out of the policy across the pilot cities and representative online job posting data, we conduct an eventstudy analysis to investigate the causal impacts of the high-tech clusters on job openings and wages across occupations and regions. We find that the policy led to a significant increase in job vacancies and offered wages in the pilot cities but with a widening wage gap between routine and non-routine occupations. This policy lowered job openings and wages in neighboring areas of the pilot cities in the short run, but they quickly recovered owing to the positive spillover effects of the high-tech clusters. We also demonstrate that building the high-tech clusters reduced the net income of routine job workers by substantially raising housing costs in the pilot cities. Our results suggest that policymakers should be cautious about occupational and regional inequalities when constructing high-tech clusters in developing countries.

Keywords: Industrial Policy, High-tech Clusters, inequality, Labor Demand