Labor Demand: The Role of Imports in Production

Abstract

Can import quality affect firms’ labor demand? In this article I analyze how high- and low-quality imports affect labor demand in importing firms in Swedish manufacturing. The largest variation is observed in medium- and large-sized firms. In large firms, an increase in high-quality imports on average reduces the demand for highly educated labor—a substitution effect in production. In medium-sized firms, the effect is the opposite, thus indicating production complementarities. The largest effect, however, is observed in micro-sized firms, where a 1% increase in high-quality imports on average increases the amount of highly educated labor by 0.021%. High- and low-quality imports tend to affect the demand for low-educated labor positively in all firm size categories, hence favoring complementarity effects in production.