Scandinavian Working Papers in Economics

Working Paper Series, Center for Labor Studies,
Uppsala University, Department of Economics

No 2016:1: Trade Competition, Technology and Labor Re-allocation

Selva Bahar Baziki (), Rita Ginja () and Teodora Borota Milicevic ()
Additional contact information
Selva Bahar Baziki: Central Bank of the Republic of Turkey, Postal: Banking and Financial Institutions Department, Macro Financial Analysis Division. Istiklal Cad. 10, Ulus, 06100 Ankara, Turkey
Rita Ginja: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Teodora Borota Milicevic: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper studies the changes in labor allocation across firms and industries in response to changes in technology (captured by the adoption of information and communication technologies, ICT) and import competition, due to increased exposure to trade competition from China. We use detailed matched worker-firm data from the Swedish manufacturing sector. We provide new evidence on the mobility of heterogeneous workers across firms and document increased assortative matching of workers in ICT intensive industries. However, the sorting patterns are not uniform across industries within this group. The adoption of ICT along with stronger Chinese import competition results in a significant skill upgrade within high-wage firms. Incontrast,intheabsence of strong pressures in importcompetition, sorting occurs at the low end of the worker-firm distribution, i.e. low-skill workers allocate to low-wage firms. Industries with low ICT intensity do not exhibit any of these sorting patterns. We rationalize our empirical findings through a labor market matching model which is able to explain the increased assortative matching in ICT intensive industries through an increase in the relative demand for qualified workers.

Keywords: Wage Inequality; Employment Dynamics; Assortative Matching; Import Competition; Technological Change

JEL-codes: E24; F16; J31; J63; O33

83 pages, December 26, 2015

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