The Impact of Increasing Import Competition on Employment and Wages in the Manufacturing Industries of the Asian Newly Industrialized Countries (NICs)

This paper examines the impact of increasing import competition on employment and wages in the Asian Newly Industrialized Countries (NICs). I use the aggregate industrial level of annual data, consisting of twenty-eight International Standard Industrial Classification (ISIC) three-digit manufacturing industries. in Hong Kong, S. Korea, Singapore and Taiwan, during the period of 1980-1997. Import competition is measured by the import share of each industry. The reduced form of employment and wage equations derived from a standard competitive model of labor demand and supply that determines factor allocations and factor prices across industries is estimated. The empirical result indicates that import competition significantly decreased both employment and wages in Hong Kong, S. Korea and Singapore. The previous literature shows that in developed countries the labor adjustments, following increasing trade. occurred only in the form of employment, not of wages. However, this sluggish wage movement did not occur in the NICs. I also use a simulation method to compare the actual impact of import competition on labor adjustments with the counterfactual paths. The labor response to import competition is not uniform across sectors and countries.