Export Destination, Skill Utilization and Skill Premium in Chinese Manufacturing sector

This paper analyzes the link between export destination, skill utilization and skill premium. We develop the mechanism behind these links: the difference in quality valuation of the product across exporting destinations and the distribution of level of skill among the skilled workers in the labor market. Theory suggest that the consumers in the high income countries value the quality of the same product more than their counterparts in middle or low income countries. To produce a higher quality product, a firm needs not only more skilled workers but also higher quality skilled workers. To attract and keep the higher quality worker, firm needs to incentivize her by providing higher wage as compared to the firms that would be exporting to middle or low income countries. We test this theory using cross-section of more than 160,000 single product Chinese Manufacturing firms survey data, of which nearly 22,000 are exporting to more than 200 countries across the world. We find that firms exporting to high income countries pay higher average wages, hire more skilled workers, defined by education level, and pay higher skill premium as compared to firms exporting to middle or low income countries or selling domestically. Similar to the recent literature, we also didn’t find the impact of exporting per se on the proportion of skilled workers or the skill premium in the firm.