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BOK Working Paper No.2018-36, Trade and Labor Demand of Firms

Economic Research Institute (82-2-759-5364) 2018.11.14 2997

Title : Trade and Labor Demand of Firms

Author : Jihyun Eum(BOK), Jinho Park(BOK), Moon Jung Choi(BOK)


 This paper analyzes the effects of trade on the labor demand of trading firms in Korea. We apply system GMM methodology to estimate the effects of import and export on employment of Korean manufacturing firms using firm-level data from Survey of Business Activities of Statistics Korea between 2006 and 2014. According to our estimated results, high-productivity firms show positive and statistically significant effects of exports on the labor demand while low-productivity firms have no statistically significant effects. Furthermore, our results show that offshoring activities mitigate the positive effects of exports on employment because tasks insid the firms should be relocated to the abroad. On the other hand, as imports increase, labor demand decreases since labor force is replaced by low-priced imported inputs. Also, firms participating in the global outsourcing mitigate the negative effect of imports since those firms achieved advanced-level of efficiency in the process of production through offshoring and expand their production. Therefore, it is important to consider heterogeneous firm productivity as well as offshoring activities in analyzing the effects of trade on labor demand at the firm level.