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Import Competition and Informal Employment: Empirical Evidence from China

Author

Listed:
  • Feicheng Wang

    (University of Göttingen)

  • Zhe Liang
  • Hartmut Lehmann

Abstract

This paper investigates the effects of trade liberalisation induced labour demand shocks on informal employment in China. We employ a local labour market approach to construct a regional measure of exposure to import tariffs by exploiting initial differences in industrial composition across prefectural cities and then link it with the employment status of individuals. Using three waves of household survey data between 1995 and 2007, our results show that workers from regions that experienced a larger tariff cut were more likely to be employed informally. Further results based on firm-level data reveal a consistent pattern; tariff reductions increased the share of informal workers within firms. Such effects are more salient among smaller and less productive firms. Our findings suggest an important margin of labour market adjustment in response to trade shocks in developing countries, i.e. employment adjustment along the formal-informal dimension.

Suggested Citation

  • Feicheng Wang & Zhe Liang & Hartmut Lehmann, 2021. "Import Competition and Informal Employment: Empirical Evidence from China," Working Papers 392, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    • Handle: RePEc:ost:wpaper:392
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    More about this item

    Keywords

    Trade liberalisation; Import competition; Informal employment; Firms; China;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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