Collateral Damage? Labour Market Effects of Competing with China - at Home and Abroad

The increased range and quality of China's exports is a major ongoing development in the international economy with potentially far-reaching effects. In this paper, we examine the impact of the China's integration in international trade in the Portuguese labour market. On top of the direct effects of increased imports from China studied in previous research, we focus on the indirect labour market effects stemming from increased export competition in third markets. Our findings, based on matched employer-employee data in the 1991-2008 period, indicate that workers' earnings and employment are significantly negatively affected by China's competition, but only through the indirect 'market-stealing' channel. In contrast to evidence for other countries, the direct effects of Chinese import competition are mostly non-significant. The results are robust to a number of checks, and the negative impacts of indirect competition are found to be stronger for women, older and less educated workers, and workers in domestic firms.