The impact of imported intermediate inputs on the skill structure of labor demand

Abstract

As global value chains (GVCs) are expanding worldwide, two notable consequences have been documented during recent decades: the increased use of imported inputs for production and the rising demand for high-skilled labor relative to that for low-skilled labor. This paper aims to answer the question of how imported intermediate inputs affect the skill structure of labor demand. The traditional indicator of imported inputs for production has become unreliable with the development of GVCs. Based on the data from input-output tables, this paper uses the foreign value-added (FV) share to measure the reliance on imported inputs for production. Furthermore, the FV share is divided into different sourcing origins to estimate the responses of labor demand to the imported inputs sourced from different origins. The results confirm that the FV share reduces the cost shares of all skill levels of domestic labor. Specifically, the FV share contributes more to the decrease in the demand for medium-skilled labor. Moreover, the FV originating from advanced and developing countries exerts different effects on the demand for domestic labor. Finally, the impact of imported inputs on labor demand varies when different indicators are used.