The China Shock, Employment Protection, and European Jobs

Hedieh Aghelmaleki,Ronald Bachmann,Joel Stiebale

doi:10.1177/00197939211052283

Hedieh Aghelmaleki, Ronald Bachmann + Show 1 more

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https://doi.org/10.1177/00197939211052283

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Abstract

The authors investigate the effects of Chinese import competition on transitions into and out of employment using comparable worker-level data for 14 European countries. Results indicate that, on average, Chinese imports are associated with an increased probability that employed workers become unemployed and with a reduction in worker flows from unemployment to employment. In countries with high levels of employment protection, incumbent workers are shielded against the risk of job loss due to Chinese competition, but unemployed workers’ prospects seem to be particularly negatively affected in these countries. The authors also provide evidence that the effects of increased Chinese imports differ by worker groups and the tasks performed on the job.

Highlights

Free trade has come under increasing scrutiny from both politicians and economists in recent years, focusing on the potentially adverse effects for workers in highly industrialised countries
What were the overall effects of imports from China on European workers’ job security and unemployment exit rates? Second, how were the consequences of this shock affected by the prevailing institutional framework in European labour markets, by employment protection legislation (EPL)? And third, which types of workers were most affected, and which types of workers benefited most from higher EPL?
In order to investigate whether EPL has an influence on the labour market effects of Chinese imports, we examine the interaction between employment protection regulations and imports from China on the transition rates between employment and unemployment

Summary

Introduction

Free trade has come under increasing scrutiny from both politicians and economists in recent years, focusing on the potentially adverse effects for workers in highly industrialised countries. In this context, the effects of China’s accession to the WTO in 2001 and the accompanying reduction in tariffs and quotas have attracted a lot of attention as the share of Chinese exports to EU countries relative to world manufacturing exports rose from around 2% in 1998 to more than 7% in 2007.1 Several empirical studies on individual countries have analyzed labour-market responses and distributional consequences of exposure to Chinese trade, with mixed results.. What were the overall effects of imports from China on European workers’ job security and unemployment exit rates? Second, how were the consequences of this shock affected by the prevailing institutional framework in European labour markets, by EPL? And third, which types of workers were most affected, and which types of workers benefited most from higher EPL?

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