The Labor Market Effects of the China Syndrome: Evidence from South Korean Manufacturing

We evaluate the direct impact of China trade shock on the Korean labor market following the approach of Acemoglu et al. (2016). Using firm- and industry-level data for the period 1993–2013, our direct estimates imply that the net employment effect of the China shock in the manufacturing sector is the creation of 0.52 million jobs. The positive impact is mostly driven by China’s rising demand for intermediate inputs and capital goods from Korea to support its export expansion to the global economy. The import-competition channel plays a negligible role in manufacturing employment because it creates temporary jobs that merely compensate for the loss in permanent jobs. By contrast, over the same period, the average wage declined by 2.4 percent, and income inequality, measured as the gap between the high- and low-income quantile, grew substantially in manufacturing. In addition, we find that the direct effect of China shock lowers labor market concentration by shifting workers from big firms to small and medium-sized firms.