Chinese Import Competition and Skill Demand in Japanese Manufacturing

Abstract

This paper examines the hypothesis that manufacturing industries in Japan that have been exposed to import competition from China experience greater skill upgrading by increasing demand for skilled workers. Using an industry panel dataset over the period 1980-2010, we exploit variations of workers' skill categories by occupation, paired with information and communication technology (ICT) investment data in the employment share regression. We find that while import competition from China has shifted from labour intensive to more capital-intensive products, this has not resulted in substituting skilled workers in Japanese manufacturing. Rather, it has had the profound positive effect of raising overall demand for skilled workers. Most of the competition effects were felt among production workers, leaving middle-skilled workers largely unaffected.