.

August 2018

170 Laurier Ave. W. Suite 604
Ottawa, Ontario
K1N 5V5613-233-8891
csls@csls.ca

CENTRE FOR
THE STUDY
OF LIVING
STANDARDS

Rising Import Competition in Canada and its
Employment Effect by Skill Group: Evidence
from the 'China Shock'

Myeongwan Kim
Prepared for Global Affairs Canada

CSLS Research Report 2018-2

1

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock'

Abstract
It is well known that there has been a secular decline in the manufacturing share of total
employment in Canada, with the decline accelerating after 2000. Among the factors that
contributed to that trend, this report focuses on rising Chinese import competition in Canada,
which also accelerated after 2000. We find that the trade-induced job loss in manufacturing
amounts to 113.5 thousand during the 2001-2011 period but the loss was not equally distributed
across skill groups. We estimate that the loss was largely driven by: low-skilled occupations(89.8 thousand) when analyzed by skill level; and occupations in services (57.6 thousand),technical/paraprofessional (12.1 thousand), and production (51.8 thousand) when analyzed byskill type. We also find that the labour reallocation in response to a trade shock is important inoffsetting the negative employment effect, but the degree of adjustment is found to vary acrossskill groups.

1

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock'
Table of Contents
Abstract ............................................................................................................................................ i
Executive Summary ....................................................................................................................... iv
List of Tables ................................................................................................................................ vii
List of Charts.................................................................................................................................. ix
I. Introduction ..................................................................................................................................1
II. Conceptual Framework ...............................................................................................................5
A. Decomposing the Effects of Import Shocks ............................................................................5
B. Defining Occupational Groups ................................................................................................6
1. Skill-level .........................................................................................................................6
2. Skill-type ..........................................................................................................................7
III. Recent Trends in Trade and Employment in Canada ................................................................8
A. Import ......................................................................................................................................8
B. Employment patterns across skill groups ..............................................................................10
1. Across skill levels ..........................................................................................................10
2. Across skill types ...........................................................................................................12
C. Occupation-specific trade exposure.......................................................................................14
IV. Empirical Strategy and Data Sources ......................................................................................17
A. Measure of occupation-specific import exposure .................................................................17
B. Identification strategy ............................................................................................................18
C. Data Sources ..........................................................................................................................20
V. Empirical Analysis 1: Occupation-Level Direct Effect ............................................................21
A. Model.....................................................................................................................................21
B. Summary Statistics ................................................................................................................23
C. Results ...................................................................................................................................28
1. Regression results ..........................................................................................................28
2. Implied employment effects ..........................................................................................34
VI. Empirical Analysis 2: Indirect Effects Operating within Local Labour Markets ....................38
A. Model.....................................................................................................................................38
B. Summary Statistics ................................................................................................................40
C. Results ...................................................................................................................................432

1. Regression results ..........................................................................................................43
2. Implied employment effects ..........................................................................................49
VII. Conclusion ..............................................................................................................................52
References ......................................................................................................................................54
Appendix: Additional Tables and Charts .......................................................................................56

3

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock'Executive Summary
It is well known that there has been a secular decline in the manufacturing share of total
employment in Canada. From 1991 to 2015, the manufacturing share of total Canadian
employment fell from 14.7 per cent to 9.5 per cent, with the decline accelerating after 2000.
Among the factors that contributed to that trend, this report focuses on rising Chinese importcompetition in Canada, which also accelerated after 2000.
Recent literature focusing on trade with China find evidence that manufacturing
employment in developed countries was negatively affected by rising Chinese importcompetition (e.g. Acemoglu, Autor, Dorn, Hanson, and Price, 2016, Balsvik, Jensen, andSlavanes, 2015; Murray, 2017). However, the previous literature tends to focus on the overall
employment effect within import-competing sectors (i.e. manufacturing sectors). However, it isimportant to study how the loss and gain are distributed among workers.
By constructing an occupation-specific trade exposure measure, we focus on how
occupation-level characteristics interact with import shocks over time. In particular, we classify
four-digit occupations in the National Occupation Classification (NOC) according to their skill
level (high, mid, and low) and skill type (management, professional, technical/paraprofessional,
other services, and production), respectively.
Skill level and skill types are two distinct dimensions characterizing a given occupation.
Skill level is associated with the amount of education or training required to enter and performthe main duties of an occupation while skill type is the type of work performed in an occupation.
Therefore, analyzing the effect of a trade shock in the two dimensions separately would allow
one to draw various policy implications.

Empirical Approach
We estimate differential employment effects across distinct skill groups based on the two
following samples: occupations within manufacturing in Canada to estimate the direct effect ofrising Chinese import competition; and occupations in both manufacturing and nonmanufacturing in Census Metropolitan Areas and Census Agglomerations (CMAs/CAs) acrossCanada to account for labour reallocation and demand effects operating within local labour
markets.
An instrumental variables strategy is employed to deal with potential endogeneity ofCanadian trade exposure. Following Autor, Dorn, and Hanson (2013) and Acemoglu et al. (2016),
we exploit the fact that during 1991-2011, the growth in Chinese imports were mostly stemmed fromfactors internal to China such as urbanization, opening to foreign investment, and accession to the
WTO. To capture the variation in Chinese import penetration driven by China's expanding exporting4

capacity, we instrument for changes in Chinese import to Canada using the changes in imports ineight other advanced economies.

Results
1. Direct effect of trade with China
Our main finding is that rising Chinese import penetration led to a loss of 113.5 thousandjobs in manufacturing over the period in which Chinese import penetration rose substantially (i.e.
2001-2011). Importantly, we find that the loss is largely driven by low-skilled occupation. Lowskilled occupations had a trade-induced job loss of 89.8 thousand. Note that this job loss
accounts for 26.9 per cent of the total decline in their employment during this period. We find nostatistical evidence that high- and mid-skilled groups were negatively affected by trade with
China.
We also find that the trade-induced job loss was not equally distributed across skill types.
When analyzed by skill type, the following groups had substantial trade-induced job losses
during the 2001-2011 period:Occupations in other services – a loss of 57.6 thousand (86.9 per cent of the total decline
in other services employment).



Occupations in technical/paraprofessional - a loss of 19.5 thousand (59.9 per cent of thetotal decline in technical/paraprofessional employment)

Occupations in production – a loss of 51.8 thousand (16.9 per cent of the total decline inproduction employment)

We find no evidence that the other three skill types (management, professional,
trades/construction/transportation) were negatively affected by rising Chinese import penetration.
The key message is that the distributional effect of trade is evident in both skill level andtype dimensions and that within the skill type dimension, the relative importance of Chinese
import penetration in explaining the observed decline in employment varies greatly across skill
groups.
One important implication from the results by skill level is that trade with China did notlead to "employment polarization" in Canada: a U-shaped employment growth in skill level
where mid-skilled experiencing a relatively slower employment growth than low- and highskilled.
2. Indirect effects of labour reallocation and demand spillovers
By exploiting variations in local employment rates and local trade exposure across 122
CMAs/CAs in Canada, we also assess the net effect of labour reallocation and demand effects
operating within localities. We find that the labour reallocation is important in offsetting the5negative direct effects but the degree of reallocation within local labour markets varies acrossskills. The labour reallocation to unaffected sectors was less successful for low-skilledoccupations when analyzed by skill level and for production occupations when analyzed by skill
type. For those two skill groups, we conclude that the labour reallocation is presumably inhibitedby negative demand effects operating within local labour markets.
Our report focuses on the cost side of the trade with China with emphasis on theemployment effect. Policymakers should also pay attention to potential benefits from trade as
much as we do to distribution concerns of trade. We would like to emphasize that costs should be
set against benefits in a balanced and principled manner so that one can assess the full picture on
trade. Lastly, the China shock is only one factor contributing to the broad trend of contracting
manufacturing employment. Factors other than trade, such as for instance technological change,
should also be considered when examining the causes behind the declining manufacturing sharein the total employment in Canada.

6

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock'

List of Tables
Table 1: Canada's Imports from China and from All Trade Partners, All Industries andManufacturing, Millions of Current Canadian Dollars, 1992-2015 ................................................8
Table 2: Employment level and Employment share in total employment by skill level, All
Industries and Manufacturing, 1991-2011, Canada .......................................................................11
Table 3: Employment level and Employment share in total employment by skill type, All
Industries and Manufacturing, 1991-2011, Canada .......................................................................13
Table 4: Annualized percentage point change in Occupation-Specific Chinese Import Penetration
Ratio and Annual per cent change in employment for Selected 3-digit NOC-S 2006,
Manufacturing, 2001-2011 ............................................................................................................16
Table 5: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio,
Manufacturing Industries, Canada .................................................................................................25
Table 6: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio, by
Skill-Level, Manufacturing Industries, 1991-2011 by sub-period, Canada...................................26
Table 7: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio, by
Skill-Type, Manufacturing Industries, 1991-2011 by sub-period, Canada ...................................27
Table 8: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in
Manufacturing Industries, Canada: OLS and 2SLS Estimates ......................................................31
Table 9: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in
Manufacturing Industries by Skill-Level, Canada: OLS and 2SLS Estimates ..............................32
Table 10: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in
Manufacturing Industries by Skill-Type, Canada: 2SLS Estimates ..............................................33
Table 11: Implied Employment Changes Induced by Changes in Chinese Import Penetration, by
Skill level and Skill type, Manufacturing sectors, Canada ............................................................35
Table 12: Summary Statistics on Changes in Employment Rates and in Chinese Import
Penetration across Local Labour Markets, All Industries, 1991-2011, % point ............................42
Table 13: Effect of Import Penetration on Employment in Canadian Local Labour Markets, All
Occupations, All Industries, 1991-2011 stacked model. ...............................................................43
Table 14: Effect of Import Penetration on Canadian Local Labour Markets, By Skill Level, 19912011: 2SLS Estimates ....................................................................................................................46
Table 15: Effect of Import Penetration on Canadian Local Labour Markets, By Skill Type, 19912011: 2SLS Estimates ....................................................................................................................47
Table 16: Implied Employment Changes Induced by Changes in Chinese Import Penetration, All
Industries, Canada, thousand .........................................................................................................48
Table 17: Implied Employment Changes Induced by Changes in Chinese Import Penetration,
Selected skill groups, Canada, thousand ........................................................................................50
7

Table 18-1: Regional share in the total manufacturing employment by skill type, 2001, per cent........................................................................................................................................................51
Table 18-2: Manufacturing share in the total employment by skill type, 2001, per cent ..............51

List of Appendix Tables
Table A1: Total Shipments, Total Domestic Absorption, and Import Penetration, Manufacturing(NAICS 31-33), Canada, 1992-2015 .............................................................................................56
Table A2: Occupation group classification, skill level and skill type ...........................................57
Table A3: Implied employment effect of rising Chinese import penetration to regional labour
markets, by region/province, thousand, all industries, 1991-2011 ................................................59
Table A3-1: Regional share in total implied employment effect in Canada, per cent, all industries,
1991-2011 ......................................................................................................................................59

8

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock'

List of Charts
Chart 1: Import penetration ratio for Canada from China and Manufacturing Share of Total
Employment, 1992-2015..................................................................................................................2
Chart 2: China's Share of Canadian Imports, All Industries and Manufacturing, Per Cent, 19922015..................................................................................................................................................9
Chart 3: Import penetration (to Canada) ratio index, All countries and China, 1992-2015,(1992=100).....................................................................................................................................10
Chart 4: Annualized employment growth and annual change in import penetration ratio, 3-digit
occupations, Manufacturing, Canada, 2001-2011 .........................................................................20
Chart 5: Occupation-specific import exposure to China: Other advanced economies vs. Canada,
1991-2001 and 2001-2011 ............................................................................................................43
Chart 6: Annual change in local employment rate and annual change in local trade exposure,
1991-2011, Canada’s CMAs/CAs, percentage point .....................................................................41

9

Rising Import Competition in Canada and its Employment Effect bySkill Group: Evidence from the 'China Shock' 1
I.

Introduction

It is well known that there has been a secular decline in the manufacturing share of thetotal employment in Canada. From 1991 to 2015, the manufacturing share of the total Canadian
employment fell from 14.7 per cent to 9.5 per cent, with the decline accelerating after 2000. In
light of the falling manufacturing share in total employment, researchers have paid attention torising Chinese exports, which also accelerated after 2000.
Chart 1 shows the manufacturing share in the total Canadian employment along with the
Chinese import penetration ratio in Canada. We see that the manufacturing share in total
employment recovers and stabilizes during the 1991-2001 period. In the post 2001 period,
however, the negative relationship between the two variables is evident. Consequently, thecausal relationship between the two has been studied extensively in the literature.
The post 2001 period is associated with increasing trade between developing anddeveloped economies. Theory suggests such trade could have negative effects on employment
and wage for unskilled workers in developed economies. However, the consensus in theliterature in the early 2000 seems to support the argument that trade does not lead to adverse
distributional effects.2 Recent literature focusing on trade with China argues that it does (e.g.
Acemoglu, Autor, Dorn, Hanson, and Price, 2016, Balsvik, Jensen, and Slavanes, 2015; Murray,2017).
However, limitation of the previous literature on trade with China is that it often focuseson the overall employment effect within import-competing sectors (i.e. manufacturing sectors).
However, it is important to study how the loss and gain are distributed among workers. The
negative employment effect at the aggregate level found in the literature (e.g. Acemoglu, et al.,2016; Murray, 2017) could have been driven by unskilled workers or a group of workers with aparticular skill. In other words, trade could have harmed unskilled workers or a particular groupof workers disproportionately more. Disaggregating the overall employment effect into different
skill groups would also shed some light on whether trade has led to "employment polarization" –specifically, a U-shaped employment growth in skill level. In this report, we focus on theemployment effect of Chinese import competition by skill both within manufacturing and acrossthe broader industrial sectors within local labour markets in Canada.

1This report was written by CSLS economist Myeongwan Kim under the supervision of CSLS Executive Director
Andrew Sharpe for Global Affairs Canada. The Centre for the Study of Living Standards would like to thank Global
Affairs Canada for financial support for this research. The author thanks Bert Waslander, Alexander Murray at
Finance Canada , and Aaron Sydor at Global Affairs Canada for comments. An earlier version of the report waspresented at the annual meeting of the Canadian Economic Association held in Montreal, Canada, June 1-3, 2018.
Email: daniel.kim@csls.ca.
2
See Autor, Dorn, and Hanson (2016) for a comprehensive review on this literature.

10Inasmuch as the demand for output produced in a particular tradable sector could be hurt
by an import shock, the demand for a particular skill could be negatively affected by the shock.
Consider a domestic sector 𝑗 whose products are being replaced by Chinese import over time.
Also, let employees in occupation 𝑘 form a majority of the employees in sector 𝑗. If there aremany exposed sectors in which occupation 𝑘 forms a large share in the sectoral employment,
then one may conjecture that we would see a decline in the demand for occupation 𝑘 as theaffected sectors contract. Then, two important questions arise: 1. What is the skill level of theemployees required in occupation 𝑘?; and 2. What type of task do employees in occupation 𝑘
perform?
The two questions are associated with two distinct dimensions of individual occupation's
characteristics: skill level and skill type. Skill level is associated with the amount of education ortraining required to perform the main duties of an occupation while skill type is the type of
economic activity performed in an occupation (not the same as industrial categorization which isabout the type of economic activity carried out by an establishment). Recent studies find thatskill-level and skill-type are important characteristics in distinguishing the impact of trade
exposure (e.g. Becker, Ekholm, and Muendler, 2013, Ebenstein, Harrison, McMillan, andPhillips, 2014, Hummels, Jørgensen, Munch, and Xiang, 2014, and Hakkala and Huttunen, 2016).
Therefore, analyzing the employment effect of a trade shock in the two dimensions separately
would allow one to draw various policy implications.

10

18

9

16

8

14

7

12

6

10

5

8

4

6

3
2

4

1

2

0

Manufacturing share of total
employment, %Import penetration, %Chart 1: Import penetration ratio for Canada from China and Manufacturing
Share of Total Employment, 1992-2015

0
1992

1995

1998

2001

2004

2007

2010

2013

Import Penetration, Manufacturing (left axis)
Manufacturing employment/working age population (right axis)

Source: Statistics Canada, Labour Force Survey (CANSIM Table 282-0001), CANSIM Table 304-0014, andInnovation, Science and Economic Development Canada, Trade Data Online.

11

Moreover, skill could be as important as industry experience in terms of readjustment inresponse to an import shock. Hence, focusing on the industry-level exposure to importpenetration may not capture the full range of the impact of trade liberalization.3 A particular skill
may be more easily employable in other (unaffected) sectors offsetting a potential negative
employment effect of import shocks. On the other hand, there could be a skill group not easily
employable in other sectors prolonging unemployment spell for affected workers. If skills have avarying degree of adjustment following an import shock, it is important to identify skill groups
that are less resilient. An analysis in this regard would have important policy implications interms of how to distribute compensation and re-training opportunities among those who lose
from international trades.
By constructing occupation-specific trade exposure following Ebenstein et al. (2014), we
capture potential employment effects by focusing on how occupation-level characteristics with
import shocks over time. In this report, we classify four-digit occupations in National
Occupation Classification (NOC) according to their skill level (high, mid, and low) and skill type(management,
professional,
technical/paraprofessional,
otherservices,
trades/construction/transportation, and production), respectively.
The empirical approach taken in this report is largely based on Acemoglu et al. (2016),
Autor et al. (2013), and Murray (2017). Although they primarily focus on industry-level
employment effects of the China shock, their conceptual framework and the associated empiricalapproach are applicable to an occupation-level analysis. Following the work cited above, we use
an instrumental variable approach to estimate the causal impact of Chinese import penetration on
Canadian employment using four-digit occupations in NOC as the unit of analysis. 4 We firstestimate the direct effect of Chinese import penetration on employment by skill group in
manufacturing industries. Then, we take into account indirect effects of labour reallocation anddemand effects operating at the occupational level within local labour markets across Canada.
The key finding is that the distributional effect of trade on employment is evident in bothskill level and type dimensions and that within the skill type dimension, the relative importanceof Chinese import penetration in explaining the observed decline in employment varies greatly
across skill groups.

3

For example, Ebenstein et al. (2014) show that there exists a clear distinction between the impact of occupational
exposure and industry exposure to globalization. They find that there is no significant negative effect of international
trade on wages of all types of workers if exposure is measured at the industry-level but there is large and significant
effect when measured at the occupation-level.
4
Following Autor et al. (2013) and Acemoglu et al. (2016), we exploit the fact that during 1991-2011, the growth inChinese imports were mostly stemmed from factors internal to China such as urbanization, rising competitiveness ofChinese manufacturing industries, and accession to the WTO. To capture the variation in Chinese import penetration
driven by China's expanding exporting capacity, we instrument for changes in Chinese import to Canada using thechanges in imports in eight other advanced economies.

12

During the period in which Chinese import penetration rose significantly (i.e. 2001-2011),
a trade-induced job loss amounted to 113.5 thousand in manufacturing. Within manufacturing,
the negative employment effect was substantial for low-skilled occupations: a loss of 89.8
thousand low-skilled jobs (26.9 per cent of the total decline in low-skilled jobs). We find noevidence that high- and mid-skilled groups were negatively affected by trade with China.
By skill type, we find that the following groups had large job losses due to trade with
China: Occupations in other services – a loss of 57.6 thousand (86.9 per cent of the total decline
in other services); occupations in technical/paraprofessional - a loss of 12.1 thousand (59.9 percent of the total decline in technical/paraprofessional); and ); occupations in production – a lossof 51.8 thousand (16.9 per cent of the total decline in production). We find no evidence that theother three skill types (management, professional, trades/construction/transportation) were
negatively affected by rising Chinese import penetration.
We also find that the labour reallocation to unaffected sectors in response to a rise inlocal exposure to Chinese import is important in mitigating the job loss occurred in affected
sectors within a given local labour market. However, the degree of labour reallocation within
local labour markets varies across skill groups. The labour reallocation to sectors not directly
exposed to Chinese import was less successful for low-skilled occupations when analyzed byskill level and production occupations when analyzed by skill type.
Focusing on the two skill dimensions results in distinct sets of estimates of the marginal
effect of the China shock on employment. This suggests that the two dimensions reflect
important characteristics of occupations that interact differently with rising import competition in
the economy over time. Hence, it provides policymakers with a useful framework for assessing
various distributional effects of rising import competition.
We would like to emphasize, however, that the employment effect is a quite narrowlydefined criteria to assess the overall consequences of trade with China. Policymakers should take
into account a wide scope of the impact to evaluate the overall welfare implication of trade.
The remainder of the report is structured as follows. In Section II, we briefly introduce a
conceptual framework to motivate our empirical strategies. We also define skill levels and skill
types to group four-digit occupations in NOC by skill. In Section III, we summarize recent trends
in Canadian trade, employment, and the degree of import competition faced by each occupationin Canadian manufacturing sectors. In Section IV, we describe the construction of an occupationspecific import exposure variable along with our data sources. Section V and VI describes thetwo empirical approaches and their results. Section VII concludes.

13

II.

Conceptual Framework
A. Decomposing the Effect of Import Shocks

In this section, we outline the conceptual framework that motivates our empiricalapproach in this report. Following Acemoglu et al. (2013), we decompose the aggregate
employment effect of an increase in Chinese import penetration as follows:

Aggregate employment effect = Direct effect on exposed occupations+ Aggregate reallocation effects+ Aggregate demand effects.
+ Indirect impact on occupations in linked industries

The direct effect is the change in employment in occupations in sectors whose outputs
compete with Chinese imports. The reallocation effect captures the potential offsetting
employment effect of absorption (in other sectors) of factors of production released fromcontracting industries. The aggregate demand effect is associated with the impact of Keynesiantype multipliers arising from change in consumption and investment at local or national level.
Lastly, negative employment effects would be found in workers employed in industries linked toan affected industry through the input-output (I-O) matrix. Using industry-level data, Murray(2017) found that I-O linkage did not have a substantial impact of the measured employment
effect in Canada. In this report, we do not estimate the effect through this channel.
The direct effect is captured in occupation-level regressions that estimate the marginal
effect of a change in import penetration on employment in occupations within manufacturing. It
is difficult to estimate the two indirect effects at the national level without a structure in ourmodel. Hence, we take a local labour market as the unit of analysis to estimate the relative effectof the two indirect effects.
Local labour markets are treated as sub-economies subject to differential import shocks
arising from the initial occupational employment structure. We define a local labour market as a
Census Metropolitan Area (CMA) or Census Agglomeration (CA) and assess the employment
impact of import shocks operating within a local labour market in Canada.5 We decompose thetotal employment effect in a local labour market as follows:5

We use 122 CMAs/CAs available across all three census years (1991, 2001 and 2011) as our sample. In 2011,
those 122 CMAs/CAs accounted for 80 per cent of the total Canadian population.

14

Local employment effect = Direct effect on exposed occupations+ Local reallocation effects+ Local demand effects.
+ Local impact on occupations in linked industries

It should be noted that the approach only captures the reallocation and demand effects
operating within a local labour market. It does not capture an adjustment determined in thenational and international equilibrium. If the extent of labour mobility across labour markets islarge, our estimates would underestimate the positive reallocation effect in response to the China
shock. Similarly, only the components of the demand effect operating at the local level would be
captured in our estimates since the national components would be the same across all local
labour markets. Hence, we acknowledge that local labour market is an appropriate unit ofanalysis only if a transmission of shocks across regions is small in Canada.

B. Defining Occupational Groups
The primary objective of this report is to quantify the effect of Chinese importpenetration on employment by skill group. In our sample, we have 494 four-digit occupations
defined in the National Occupation Classification system (NOC). Therefore, it would be moremeaningful and convenient to aggregate the 494 occupations into some broader groups. However,such broader groups must be chosen carefully such that they represent important dimensions ofoccupation characteristics relevant for analyzing the impact of Chinese import shock.6
In this study, we classify 4-digit occupations by two criteria following a variant of NOC
developed jointly by Statistics Canada and Human Resources and Skills Development Canada(HRSDC). Occupations are classified according to either skill-level and skill-type. See Appendix
Table A2 for details.
1. Skill-level
Skill level is associated with the amount of education and training required to enter andperform the main duties of an occupation. Along with education and training, the experience
required for entry, and the complexity and responsibilities typical of an occupation are also
considered to determine skill level. Requirements for individual occupations may overlap
between the skill levels. For example, some occupations can be entered with either a university
degree or a college diploma. In this case, skill level is determined by considering several factors.
6

Note that the cross-sectional unit in our framework is still 4-digit occupation. It is important to analyze trade
shocks in general equilibrium but it requires researchers to empirically map trade shocks into a small number ofaggregate outcomes. With a limited number of observations at aggregate level, it would be tricky to isolate the effectof shocks due to confounding factors. Hence, we estimate the direct effect of trade shocks using individual 4-digit
occupations as the unit of analysis.

15

These factors include the requirements most generally demanded by employers, complexity ofoverall responsibilities and knowledge requirements, and further training and specialization
obtained on the job. In the variant of NOC, occupations are classified into 4 skill levels: skill
level A, skill level B, skill level C, and skill level D.
We define high-skilled group to include occupations in skill-level A. Mid-skilled group isdefined to include skill-level B. Lastly, we define low-skilled group to include both skill-level C
and D.7As a result, high-skilled group represents occupations that require at least Bachelor's
degree to enter and perform the tasks. Mid-skilled group represents occupations that usuallyrequire college-level education, apprenticeship training, or occupation-specific on-the-job
training. Occupations in the low-skilled group require secondary school education or shortoccupation-specific training, or no formal education (but require only on-the-job training).
2. Skill-type
Skill type represents the type of work performed on the job. Note that although some skill
types tend to be associated with a particular industry, industry and occupation are two distinct
variables which can be cross-tabulated to provide detailed information on employment. Industrial
categorization is determined by the kind of economic activity carried out by an establishment(factory, mine, farm, store, etc.) while occupational categorization is determined by the kind of
economic activity carried out by an individual worker.8 An establishment can employ workers
performing a completely different type of skill. In other words, the nature of the factory, businessor service in which the worker is employed does not determine the classification of his or her
occupation, except to the extent that it allows the nature of the tasks to be more clearly defined.
The occupational categories are chosen to distinguish different dimensions of task
content of jobs that are relevant for analyzing the effects of increased importing. According to avariant of NOC developed jointly by Statistics Canada and HRSDC, the 2-digit occupations are
re-classified into 10 broader groups. However, due to the limited number of observations in eachgroup established by Statistics Canada and HRSDC, we further aggregate the 10 groups into 6
broader groups: 1. management; 2. professional; 3. technical and paraprofessional; 4. otherservices; 5. trade/construction/transportation; and 6. production.
It is important to note that a given skill level is not necessarily correlated with a specificskill type. In our classification, the high-skilled group (skill level A) is equally distributed acrossmanagement and professional rather than concentrated on one specific group. Also, mid-skilled(skill level B) and low-skilled (skill level C and D) groups are readily found across the following
three different skill types: technical/paraprofessional; other services;trades/construction/transportation; and production. Hence, the classifications by skill type and byskill level represent two distinct dimensions of a given occupation.
7

For occupations in skill level C, workers are usually required to have secondary school and/or occupation-specifictraining. For skill level D, only on-the-job training is usually required.
8
However, some occupations are found almost solely within one particular industry. For example, mining or
automobile assembly occupations are found only within their respective industrial sectors. During the original
research and development of the NOC, it was realized that in many industries, occupational mobility is determined
more by internal job ladders than by functional specialization. In consequence, some unit groups include
occupations in a particular skill level within an industry.

16

III.

Recent Trends in Import and Employment in Canada

In this section, we review recent trends in import and employment in Canada. We briefly
discuss the trends in imports to Canada over the period 1992-2015 at the aggregate level and for
manufacturing.9 Here, we focus more on the employment distribution across occupations both at
the aggregate level and in the manufacturing industry. Specifically, we examine employment
patterns across both skill levels (high- ; mid- ; low-skilled) and skill-types (management;
professional; technical/paraprofessional; other services; production).10

Table 1: Canada's Imports from China and from All Trade Partners, All Industries and Manufacturing,
Millions of Current Canadian Dollars, 1992-2015
All industries
1992

1996

2000

2004

2008

2012

2015

China

2,453

4,931

11,294

24,104

42,62850,72365,650All Countries

148,018

232,566

356,992

355,886

433,999

462,072

535,604

China Share (%)

1.7

2.1

3.2

6.8

9.8

11.0

12.3

Manufacturing
1992

1996

2000

2004

2008

2012

2015

China

2,381

4,781

11,13023,78842,25250,25065,077All Countries

131,142

206,421

321,144

314,050

360,983

389,058

471,212China Share (%)

1.8

2.3

3.5

7.6

11.7

12.9

13.8

Manufacturing Share of Imports (%)
1992

1996

2000

2004

2008

2012

2015

97.1

97.0

98.5

98.7

99.1

99.1

99.1

All Countries
88.6
Source: Table 1 in Murray (2017)

88.8

90.0

88.2

83.2

84.2

88

China

A. Import
Table 1 summarize trends in Canada's imports from China and from all trade partners
over the 1992-2015 period. By 2015, Canada imported goods and services valued at $535.6
billion (in current dollars). They grew by 5.8 per cent per year from $148.0 billion in 1992.
Chinese imports reached $65.7 billion by 2015. It had increased by 15.4 per cent per year from
$2.5 billion in 1992. During this period, Chinese share of Canada's total import increased from
1.7 per cent to 12.3 per cent, a 10.6 percentage point increase.
We observe a very similar trend in imported manufactured goods. First, most of theimports to Canada were manufactured goods. Manufactured goods accounted for 87.6 per cent of
total imports on average over the 1992-2015 period. The share of manufactured goods is evengreater if we focus on Chinese imports to Canada. Manufactured goods accounted for 98.4 per
9

For detailed discussion, see Murray (2017).
Refer to Appendix Table A2 for the two classification criteria.

1017cent of Chinese imports on average over the 1992-2015 period. It is important to emphasize thatmost of the increase in China's share of Canadian imports occurred after 2000 (Chart 2).
Although the growth of Chinese imports somewhat slowed after 2000, the growth of Canada's
total imports slowed by much more, resulting in a faster expansion in the Chinese share after
2000 than before.11

Chart 2: China's Share of Canadian Imports, All Industries and Manufacturing,
Per Cent, 1992-2015
16.0
14.0
Per cent

12.0
10.0
8.0
6.0
4.0
2.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

0.0

All Industries

Manufacturing

Source: Chart 1 in Murray (2017)

In this report, we quantify the degree of import competition in terms of importpenetration ratio, the ratio of imports to total domestic absorption in that industry (see Section IV
for detailed description of the variable). Appendix Table A1 presents trends in domestic
absorption and import penetration for the manufacturing industry in Canada. Canadianmanufacturing experienced a significant rise in import competition over the period 1992-2015.
Over this period, the import penetration ratio rose from 45.7 per cent to 64.5 percent (increase by
18.8 percentage points). China played an important role in such increase in the importpenetration ratio. Of the 18.8 percentage-point increase, 8.1 percentage points (43 percent of thetotal increase) were driven by rising imports from China.
Chart 3 depicts the index for the import penetration ratios for China and for all trading
partners of Canada. Relative to the import penetration of all trading partners, Chinese penetrationrose by more. Much of the increase in import competition from China relative to other trading
partners occurred during the 2000-2008 period, which covers the period from the entry of China
into the WTO in 2001 to the slowdown in global trade associated with the global recession of2008 and 2009. Over that period, import penetration from China increased by 4.5 percentage
points while overall import penetration fell by 1.6 percentage points.
11

The growth rate of Chinese imports declined from 21.0 per cent per year over the 1992-2000 period to 18.1 percent per year over the 2000-2008 period,

18

Chart 3: Import penetration (to Canada) ratio index, All countries and China, 19922015, (1992=100)
1200

1072

1000

2008: 837

800
600
400

2000: 277200

2008: 121

141

2000: 124

01992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Import Penetration, China

Import Penetration, All countries

Note: Import penetration ratio is defined as the ratio of import to domestic absorption (total industry
shipment less export plus import).
Source: Authors' calculation based on trade data base maintained by Innovation, Science, and Economic
Development Canada.

B. Employment patterns across skill groups
1. Across skill levels
Next, we examine the employment distribution across skill levels both at the aggregate
level and in manufacturing industry in Canada. Table 2 summarizes the employment pattern
across the three skill levels over the 1991-2011 period. First of all, there is a divergence inaggregate employment growth between high-skilled and low-skilled occupations in Canada.
High-skilled occupations experienced a robust 2.14 per cent growth per year over the period
1991-2011 while the low-skilled employment expanded at a 0.76 per cent per year. Mid-skilledemployment stood in between, growing at 1.29 per cent per year. Similarly, withinmanufacturing, low-skilled occupations experienced a faster decline over the period than theother two skill groups.
Consistent with the above observation, the employment share of low-skilled occupations
had been shrinking at 0.22 percentage points per year over the period 1991-2011. In contrast, thehigh-skilled share of the total employment in Canada had increased by 0.21 percentage points
per year over time. The employment share of the mid-skilled occupations had remained stable
over the two decades as it shrank during the first half of the period 1991-2011 and expanded
during the second half. A similar trend is found within the manufacturing industry. The share of
low-skilled occupations in total manufacturing employment declined, while the upper two skill
19

groups gained. Such monotonic change in the employment share across the three skill levels issomewhat different from non-monotone changes observed in the United States.12

Table 2:Employment level and Employment share in total employment by skill level, All Industries
and Manufacturing, 1991-2011, Canada
Panel A: Employment Level (thousand)All Industries
High-skilled

Mid-skilled

Low-skilled

1991

2981.94241.45641.02001

3753.34670.36222.920114556.25476.06562.9Compound annual growth (%)
1991-2001

2.33

0.97

0.99

2001-2011

1.96

1.60

0.53

1991-2011

2.14

1.29

0.76

Manufacturing
High-skilled

Mid-skilled

Low-skilled

1991

275.4

611.4

968.6

2001

285.3

659.5

1086.1

2011

248.9

523.7

752.5

Compound annual growth (%)
1991-2001

0.35

0.76

1.15

2001-2011

-1.36

-2.28

-3.60

1991-2011

-0.51

-0.77

-1.25

Panel B: Employment in each group / Total employment (%)
All Industries
High-skilled

Mid-skilled

Low-skilled

1991

23.2

33.0

43.8

2001

25.6

31.9

42.5

2011

27.5

33.0

39.5

Manufacturing
High-skilled

Mid-skilled

Low-skilled

1991

14.8

33.0

52.2

2001

14.0

32.5

53.5

2011

16.3

34.3

49.3

Source: The 1991 and 2001 Censuses and the 2011 National Household Survey.

12

In the United States, employment shares increased (and at a faster rate) in the upper and bottom tails of the skill
distribution while the median skill groups experienced either negative or slower growth in the employment share (Ushaped employment share changes across the skill distribution). See Autor and Dorn (2013).

20

During the period 2001-2011, the aggregate employment growth slowed relative to theperiod 1991-2001 (except for mid-skilled occupations).Within manufacturing, employment
growth turned negative for all three skill levels with low-skilled occupations experiencing thefastest annual decline (-3.60 per cent). In terms of employment share, low-skilled was the only
group that experienced a declining employment share during 2001-2011, the period associatedwith a significant rise in the Chinese import competition in Canada. High- and mid-skilledoccupations actually saw an increasing employment share over the same period. This is incontrast to the previous decade (1991-2001) when both high- and mid-skilled occupations saw aslight decline in their employment share.13
The employment shift towards the upper skill levels is consistent with the conventionalview of skill-biased technological change. Within the manufacturing industry, it may also be thecase that a rising Chinese import competition in low-tech manufactured goods may have induced
Canadian firms to invest more in high-skilled labour and high-tech capital or to focus more onhigh value-added niches. How much of the decline in low-skilled occupations can be attributed
to the rising Chinese import competition? The question will be explored formally in thefollowing regression analysis.
2. Across skill types
Next, we examine employment patterns across skill types in Canada over the period
1991-2011. Table 3 summarizes the employment level and employment share of each skill typein Canada over the period 1991-2011. First, occupations in Other services accounted for thelargest share of the total employment in Canada. They accounted for 39.2 per cent of employedpersons in 2011 although their share had decreased slightly over time (-0.13 percentage point peryear). In turn, the employment shares of occupations in management, professional, andtechnical/paraprofessional increased over the 1991-2011.
In terms of the employment level, occupations in production was the only skill group that
had a negative annual growth over the period 1991-2011. Some portion of the negative growth
seems driven by a substantial fall in the production employment within manufacturing during the
2001-2011 period (a decline of 4.30 per cent per year). Of the 241.8 thousand decrease inproduction employment across all industries, 57.8 thousand occurred within manufacturing (or24 per cent). The rest can be explained by the decline of the production occupations in primarysectors such as agriculture, forestry, and mining, oil, and gas extraction.14

13

During 1991-2001, the employment level grew for the two skill levels but the total manufacturing employment
expanded at a faster rate (driven by an expansion of low-skilled occupations) resulting in slight negative changes fortheir employment shares.
14
Most of the production occupations are found in either the primary sector or manufacturing in the economy.

21

Table 3:Employment level and Employment share in total employment by skill type, All Industries andManufacturing, 1991-2011, Canada
Panel A: Employment Level (thousand)All Industries
Other
services

Trades &Construction &Transportation

Production

Management

Professional

Technical &Paraprofessional

1991

1316.81612.61170.55375.01920.71468.6

2001

1573.3

1984.51658.05779.32069.6

1581.820111731.62596.32170.96501.32368.21226.8Compound Annual Growth (%)
1991-2001

1.80

2.10

3.54

0.73

0.75

0.74

2001-2011

0.96

2.72

2.73

1.18

1.36

-2.51

1991-2011

1.38

2.41

3.14

0.96

1.05

-0.90

Other
services

Trades &Construction &Transportation

Production

Manufacturing

Management

Professional

Technical &Paraprofessional

1991

176.2

60.0

150.2

473.7

381.0

614.3

2001

177.5

39.1

200.9

333.9

416.0

863.4

2011

147.1

39.3

180.7

267.7

333.8

556.5

Compound Annual Growth (%)
1991-2001

0.08

-4.19

2.95

-3.43

0.88

3.46

2001-2011

-1.86

0.03

-1.05

-2.19

-2.18

-4.30

1991-2011

-0.90

-2.10

0.93

-2.81

-0.66

-0.49

Panel B: Employment in each group / Total employment (%)
All Industries
Technical &Paraprofessional

Other
services

Trades &Construction &Transportation

Production

Management

Professional

1991

10.2

12.5

9.1

41.8

14.9

11.4

2001

10.7

13.5

11.3

39.5

14.1

10.8

2011

10.4

15.6

13.1

39.2

14.3

7.4

Other
services

Trades &Construction &Transportation

Production

Manufacturing

Management

Professional

Technical &Paraprofessional

1991

9.5

3.2

8.1

25.5

20.5

33.1

2001

8.7

1.9

9.9

16.4

20.5

42.5

2011

9.6

2.6

11.9

17.6

21.9

36.5

Source: The 1991 and 2001 Censuses and the 2011 National Household Survey.

22

Within manufacturing, for an obvious reason, occupations in production accounted forthe largest share in total manufacturing employment. But it is interesting to see that: 1. during theperiod 1991-2001, production workers had a relatively robust increase in both the employment
level and employment share; and 2. the share of production occupations in total employment fellduring the period 2001-2011 while shares of other skill types rose. Such employment shifts
partly reflect that Canadian manufacturing had shifted away from traditional manufacturing
towards a higher value-added niche due to technological changes and import competition in lowtech manufactured goods.
It should be noted that occupations in other services accounted for a substantial share in
total manufacturing employment. However, their share declined over time. It accounted for 17.6
per cent of the total manufacturing employment in 2011, down from 25.5 per cent in 1991.
Within the manufacturing industry, the employment level of service occupations declined at thefastest annual rate over the1991-2011 period. The rate of decline is much faster than what we
observe for the production occupations (-2.81 per cent vs. -0.49 per cent). This is so despite thefact that the employment level in production occupations declined at a much faster rate over theperiod 2001-2011.
However, such decline seems driven by factors other than the rising Chinese importcompetition during 2001-2011. Most of the decline in employment level occurred during 19912001. The rate of decline during the 2001- 2011 period is actually lower that that observed
during the earlier period. Moreover, the employment share of other services actually increased
during the 2001-2011 period in which occupations in production were the only group with afalling employment share.

C. Occupation-specific trade exposure
Based on equation (2) in Section IV, we compute import exposure for 140 three-digit
NOC occupations in the manufacturing industry in Canada. Table 4 presents the occupations
with the ten largest and ten smallest changes in Chinese import exposure over the 2001-2011
periods.
The top ten occupations include occupations with various skill types and skill levels.15
Importantly, occupations with large annual increases in the import penetration ratio tend to havetheir employment concentrated in highly exposed sectors in manufacturing. For example,
occupations that experienced the largest increase in import penetration were Managers incommunication (except broadcasting). Note that 52 per cent of their total manufacturing
employment was in Communications equipment manufacturing (NAICS 3342) in 2001. Amongthe manufacturing sectors, it experienced the largest increase in import penetration (7.23
percentage-point increase per year) over the period 2001-2011.

15

We also examined occupations whose import penetration ratio increase was above the 75th percentile. Amongthem, about 43 per cent were in high-skilled; 31 per cent in mid-skilled; and 26 per cent in low-skilled. In terms ofskill type, most of them were in management, technical/paraprofessional, and production.

23

The second largest is Computer and Information Systems Professionals. In 2001, theiremployment was concentrated in Communications equipment manufacturing (NAICS 3342) andSemiconductor and Other Electronic Component Manufacturing (NAICS 3344), the sectors withlarge annual increases in import penetration over the 2001-2011 period: 1.37 and 7.23
percentage-points respectively. Also included is Machine operators and related workers infabric, fur and leather products manufacturing. Of their total manufacturing employment, 64 percent were in Clothing knitting mills (NAICS 3151). The sector experienced a 5.22 percentagepoint increase per year over the 2001-2011 period.
We observe the occupations in the bottom ten exhibit only negligible annual increases intheir import exposure to China. Some of them tend not to be directly related to economic
activities carried out in establishments in manufacturing. They include: 1. Psychologists, Social
Workers, Counsellors, Clergy and Probation Officers; 2. Assisting Occupations in Support of
Health Services; 3. Other Occupations in Protective Service; and 4. Other Occupations in Travel,
Accommodation, Amusement and Recreation.
Two of the bottom ten are in mining, oil, and gas extraction: Mine service workers andoperators in oil and gas drilling and Supervisors, Mining, Oil and Gas. For the former, of thetotal manufacturing employment in 2001, 38.6 per cent was in Petroleum and coal productmanufacturing (NAICS 3241). For the latter, 54.8 per cent was in that sector. This sector was
one of only few manufacturing sectors that faced a declining import penetration ratio during the
2001-2011 period.
Also included in the bottom ten are occupations in Supervisors, Logging and Forestry. In
2001, of their total manufacturing employment 67.3 per cent were in Sawmills and Wood
Preservation (NAICS 3211). Also included is Logging Machinery Operators. For this
occupation, 79.2 per cent of their total manufacturing employment was in Sawmills and Wood
Preservation (NAICS 3211). This manufacturing sector exhibited a very small annual increase in
its import exposure (0.001 percentage points per year).
We see some negative correlation between annual changes in import penetration andannual changes in employment. For example, occupations in Managers in communication(except broadcasting) exhibited the largest annual increase in import penetration over the 20012011 period. During this period, they experienced a quite fast decline in employment: -11.22 percent decline per year. Following them was Machine operators and related workers in fabric, furand leather products manufacturing. They had the second largest annual increase in importpenetration (2.20 percentage points) and a considerably large decline in employment (a negative
10.95 per cent decline per year).16 For the bottom ten occupations, they tend to be associatedwith positive or smaller negative rates of change in employment over the 2001-2011 period.

16

The reason we see a particularly large number for annual employment growth at the 3-digit occupation level isthat, within the manufacturing industry, some occupations saw a large jump or fall in its number of employed person
over time. For example, the number of employed persons in Other elemental service occupations was 3,445 in 2001
and 575 in 2011. Also, the number of employed persons in Managers in communication (except broadcasting) was
970 in 2001 and 295 in 2011. Lastly, Machine operators and related workers in fabric, fur and leather products
manufacturing had 62,475 employed persons in 2001 and 19,585 in 2011.

24

Table 4: Annualized percentage point change in Occupation-Specific Chinese Import Penetration Ratio and Annual
per cent change in employment for Selected 3-digit NOC-S 2006, Manufacturing, 2001-2011
Employment∆ in Import
growthPenetration
Ten largest(%)
Ratio (% pt)
4.37-11.22
A31 Managers in communication (except broadcasting)
C07 Computer and Information Systems Professionals

2.25

-1.28

J16 Machine operators and related workers in fabric, fur and leather products manufacturing

2.20-10.95

H51 Upholsterers, tailors, shoe repairers, jewellers and related occupations

2.12

-7.97

G98 Other elemental service occupations

2.09-16.39

C18 Technical occupations in computer and information systems

1.96

-2.26

C14 Technical Occupations in Electronics and Electrical Engineering

1.82

-3.76

G81 Childcare and Home Support Workers

1.73

-0.91

H12 Carpenters and cabinetmakers

1.68

-2.00

A12 Managers in Engineering, Architecture, Science and Information Systems

1.64

-0.60

I12 Supervisors, Mining, Oil and Gas

0.17

-1.98

I14 Mine Service Workers and Operators in Oil and Gas Drilling

0.13

-0.43

I11 Supervisors, Logging and Forestry

0.12

-9.32

G73Other Occupations in Travel, Accommodation, Amusement and Recreation

0.12

20.11

I15 Logging Machinery Operators

0.10-10.31

G94 Butchers and Bakers

0.08

0.60

G62 Other Occupations in Protective Service

0.07

-8.38

D03Assisting Occupations in Support of Health Services

0.07

12.47

I17 Fishing Vessel Masters and Skippers and Fishermen / women

0.06

33.51

Ten smallest

E02 Psychologists, Social Workers, Counsellors, Clergy and Probation Officers
0.01
12.07
Source: Author's calculation based on the online trade data base maintained by Innovation, Science, and Economic
Development Canada and the 1991 and 2001 censuses and 2001 National Household Survey.
Note: D01 (Physicians, Dentists, Veterinarians) has an annualized percentage point change in OIP of 0.00 but its employment
level in 2001 is zero while the level in 2011 is 120 resulting in huge employment growth. Similarly, F13 (Announcers andOther performers) has an annualized percentage point change in OIP of 1.96 but its employment level in 2001 is 70 while thelevel in 2011 is zero (very large negative percent change). We excluded these two occupations in our analysis as we do notwant occupations ostensibly unrelated to manufacturing to drive our main results.

To examine a correlation between the two variables among all 140 three-digit
occupations, we plot employment growth against changes in import penetration ratio. Chart 4
depicts a scatter plot between annualized employment growth and annual change in importpenetration ratio over the 2001-2011 period. We observe that occupations with a lower growthrate (or a greater rate of decline) in their employment tend to experience a larger increase in
Chinese import competition and vice versa.

25

Chart 4: Annualized employment growth and annual change in import penetration
ratio, 3-digit occupations, Manufacturing, Canada, 2001-2011

Source: Author's calculation based on the online trade data base maintained by Innovation, Science, andEconomic Development Canada and the 1991 and 2001 censuses and 2001 National Household Survey.

IV.

Empirical Strategy and Data Sources
A. Measure of occupation-specific import exposure

Following Ebenstein et al. (2014), we construct occupation-specific exposure tointernational trade using the distribution of workers employed in an occupation across industries.
Specifically, this is done by weighting industry-specific exposure by an industry's start-of-period
share in the total number of employed workers in a given occupation.
First, industry-level import exposure can be defined as follows:∆𝐼𝑃𝑗 ,𝜏 ≡ 𝑌∆𝑀𝑗𝑐𝑐,𝜏
𝑗 ,92 +𝑀𝑗 ,92 −𝐸𝑗 ,92(1)where 𝑗 denotes subsectors in the manufacturing industry. 𝜏 denotes the two sub-periods: 19922001 and 2001-2011. 𝑌𝑚𝑎𝑛𝑢 ,92 + 𝑀𝑚𝑎𝑛𝑢 ,92 − 𝐸𝑚𝑎𝑛𝑢 ,92 = 𝐽𝑗 =1(𝑌𝑗 ,92 + 𝑀𝑗 ,92 − 𝐸𝑗 ,92 ). 𝑌𝑗 ,92 isindustry shipments of sector 𝑗 in 1992, 𝑀𝑗 ,92 and 𝐸𝑗 ,92 are imports and exports in sector 𝑗 in
1992.17 Hence, 𝑌𝑗 ,92 + 𝑀𝑗 ,92 − 𝐸𝑗 ,92 represents the domestic absorption in sector 𝑗 in the initial
𝐽
𝑐𝑐
𝑐𝑐
𝑐𝑐
period. ∆𝑀𝑚𝑎𝑛𝑢,𝜏 = 𝑗 =1 ∆𝑀𝑗 ,𝜏 and ∆𝑀𝑗 ,𝜏 is the change in import from China in subsector 𝑗 over𝜏.18
17

Our starting year for ∆𝐼𝑃𝑗 ,𝜏 is 1992 instead of 1991 which is the starting year for our dependent variable. Tradedata by industry for China are available only from 1992. Note that we annualize the change during 1992-2001 andmost of the increase in Chinese import competition occurred after 2000. Therefore, this would not cause any serious
problem.
18
Note that our model based on Equation (1) would not account for the effect of manufacturing imports from othercountries being replaced by Chinese imports. This effect could be non-negligible according to Chart 3. To the extent

26

All nominal values are converted to chained 2007 Canadian dollars using the household
consumption expenditure deflator. Variation in ∆𝐼𝑃𝑗 over time reflects only the change in thereal value of Chinese imports, while the domestic market size is held constant at its initial value.
A motivation for normalizing by initial domestic absorption is that variation in import exposure
occurs only from changes in Chinese imports, not from other factors that might affect domestic
market size during the period in which Chinese import rose.
Following Ebenstein et al. (2014), the change in trade exposure for occupation 𝑘 (4-digit
occupation) for a Canadian manufacturing industry over period 𝜏 is defined as follows:∆𝑂𝐼𝑃𝑘,𝜏 ≡𝐽
𝑗 =1 𝛼𝑘𝑗 ,𝜏 ∙ ∆𝐼𝑃𝑗 ,𝜏

(2)

𝐿𝑚𝑎𝑛𝑢

𝑘,𝑗 ,𝜏
where 𝛼𝑘𝑗 ,𝜏 ≡ 𝑚𝑎𝑛𝑢
. 𝐿𝑚𝑎𝑛𝑢
𝑘𝑗 ,𝜏 is the number of employed workers in occupation 𝑘 in sector 𝑗 at the

𝐿𝑘,𝜏
𝑚𝑎𝑛𝑢
start of 𝜏. 𝐿𝑘,𝜏 is the number of workers in occupation 𝑘 across all sectors in manufacturingindustry at the start of 𝜏. 19
The above represents percent change in trade exposure of occupation 𝑘 in the
manufacturing industry over 𝜏. Variation in ∆𝑂𝐼𝑃 across occupations arises from variations in
the initial distribution of occupations across manufacturing sectors.20

B. Identification strategy
One issue with our estimation using (2) is that realized imports from China could becorrelated with import demand shocks resulting in a biased OLS estimate (underestimate the true
impact). This is due to the possibility that both Canadian employment and imports are correlatedwith unobserved shocks to demand for Canadian product.
Hence, an instrumental variable strategy is employed to deal with potential endogeneityof trade exposure. Following Autor et al. (2013) and Acemoglu et al. (2016), we exploit the factthat during 1991-2011, the growth in Chinese imports stemmed mostly from the risingcompetitiveness of Chinese manufacturing industries and lowering of trade barriers andaccession to the WTO. To capture the variation in (2) driven by China's expanding exporting
capacity, we instrument for changes in Chinese imports to Canada using the changes in importpenetration in eight other advanced economies.21
our model fails to account for such effect, one could expect that our estimate of the employment effect of the China
shock is understated.
19
Note that 1991 data are available rather than 1992. This is not consistent with industry-specific import penetration
whose starting year is 1992. We assume employment structure in 1991 within locality was not fundamentallydifferent from 1992. Hence, we use 1991 value for the employment.
20
Variation may not be significant at a broader level (skill-type and skill-level). However, at the 4-digit occupationlevel, variation is substantial.
21
The eight economies are Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain and Switzerland. We
exclude the United States because its economy is highly integrated with Canada and is likely to have experienced
similar demand patterns.

27∆𝐼𝑃𝐸𝑗 ,𝜏 ≡ 𝑌

∆𝑀𝑗𝐸𝐴
,𝜏
𝑗 ,92 +𝑀𝑗 ,92 −𝐸𝑗 ,92(3)

where ∆𝑀𝑗𝐸𝐴,𝜏 represents the change in the Chinese imports of eight other advanced economies inindustry 𝑗 over 𝜏. The nominal values of imports of the eight economies are converted from
USD to Canadian dollars using annual PPPs for personal consumption expenditure from theOECD, deflated to chained 2007 Canadian dollars using the Canadian PCE deflator.
Then, we obtain the following for occupation 𝑘.

∆𝑂𝐼𝑃𝐸𝑘,𝜏 ≡𝐽
𝑗 =1 𝛼𝑘𝑗 ,𝜏 ∙ ∆𝐼𝑃𝐸𝑗 ,𝜏

(4)

The motivation for our identification strategy is that the eight advanced economies would
have been exposed to China in a similar way in that Chinese import growth was driven by supply
shocks in the country. Then, the key identifying assumptions are: 1. product demand shocks areuncorrelated across the eight countries; and 2. there are no strong increasing returns to scale in
Chinese manufacturing such that Canadian demand shocks might increase efficiency in the
Chinese manufacturing industries and lead them to export more to the eight other economies.22
Although the former might contaminate (downwardly) our estimates of the impact of the China
shock on employment, we think the latter is not likely to be a major concern since the size ofCanadian economy is too small relative to the global economy.
Our data suggest that approximately 82 per cent of the variation in occupation-specificimport penetration is driven by exogenous supply shocks.23 This suggests that import growth in
the eight advanced economies has strong predictive power for Chinese import growth in Canada(see Chart 5). As a comparison, Acemoglu et al. (2016) find that 62 per cent of the total variationin Chinese imports to U.S. was driven by supply shocks. Balsvik et al. (2015) find thatexogenous supply shocks can explain about 91 per cent of the total variation in Chinese imports
to Norway.

22

As pointed out in Goldsmith-Pinkham et al. (2018), in this IV setting, there could be a small number ofoccupations driving a large share of the identifying variations in our sample. Autor et al.(2013) also point out thatthe electronic computer industry in their sample could be a major source of endogeneity stemmed from correlated
demand shocks across the U.S and eight other countries due to common innovations in the use of information
technology. In our case, a group of occupations related to ICT (e.g. Information system analysts and consultants,
Database analysts and data administrators, Software engineers and designers, Web designers and developers) may
be a source of a similar endogeneity problem. As a crude test, we estimated the equation after we excluded ICTrelated occupations in our sample. The estimated marginal effect was found to be slightly larger. This is consistent
with our prediction that those occupations would contaminate the estimate downwardly.
22
See Autor et al. (2013) for further discussion.
23
This is based on regressing (2) on (4) for all 4-digit occupations in the Canadian manufacturing industries(equivalent to first-stage regression in our subsequent 2SLS estimation). The R-squared from such regression is
0.82.

28

Chart 5: Occupation-specific import exposure to China: Other advanced economies vs.
Canada, 1991-2001 and 2001-2011

Source: Author's calculation based on the online trade data base maintained by Innovation, Science, andEconomic Development Canada and the 1991 and 2001 censuses and 2001 National Household Survey.

C. Data Sources
Trade data required to construct the industry-level import penetration ratio and its
instrument are provided by Alexander Murray. In Murray (2017), trade data for Canada are
drawn from the Trade Data Online database maintained by Innovation, Science and Economic
Development Canada (ISED). The database provides import and export statistics by detailed
four-digit NAICS industry. Data are available for nominal values of total imports, total exports,
and imports from China for 85 four-digit NAICS manufacturing industries for the 1992-2015
period. The import penetration measures are normalized by the industry's total domestic
absorption (total industrial shipment plus imports minus export). Data on total shipments by
four-digit NAICS manufacturing industry are drawn from CANSIM Table 304-0014.
In order to construct the instrumental variable, we need data on the Chinese imports ofeight other advanced economies by four-digit NAICS industry. In Murray (2017), the data wereobtained on each country's Chinese imports by six-digit HS product code from the UN Comtrade
database. Then, the data are mapped into 85 four-digit NAICS manufacturing industries using aprocedure developed in Pierce and Schott (2012).24

24

There are 86 four-digit NAICS manufacturing industries. However, the mapping from HS products to NAICS
industries had no products into NAICS 3328 (Coating, engraving, cold and heat treating and allied activities).
Hence, the industry is dropped, leaving us with a sample of 85 manufacturing industries. We think that our analysis
would not be sensitive to the exclusion; in the data from ISED, imports in this industry are close to zero.

29

To construct the occupation-specific import penetration ratio, we need employment data
for each occupation across all manufacturing industries in Canada. We draw measures of
employment by four-digit NOC occupations across 85 NAICS manufacturing industries from the1991 and 2001 censuses and the 2011 National Household Survey. For our local-level analysis,
we extract the employment data by industry and by occupation for each of 122 CMAs/CAs fromthe censuses.
However, industries and occupations are coded based on different classification systems
across the three censuses. In the 1991 census, industries and occupations are coded according to
the Standard Industrial Classification System (SIC) 1980 and NOC 1991; in the 2001 census,
NAICS 1997 and NOC-S 2001; and in the 2011 census, NAICS 2007 and NOC-S 2006.
Concordance of the NOC (𝑡 year) -NOC (𝑠 year) (or SIC-NAICS) is a research questionand some methods are suggested in the literature. Conveniently, in the 2001 census, both SIC
1980 and NOC 1991 are available. Hence, we use employment shares in the 2001 census basedon the year's cross-tabulation of NOC 1991 - NOC-S 2001 and SIC 1980 -NAICS 1997
respectively. Based on the cross-tabulation, we can compute the share of each occupation in the
NOC-S 2001 and each industry in NAICS-1997 across the occupations in NOC-1991 and theindustries in SIC-1980, respectively. In other words, we get an employment share for each pairof NOC-1991 and NOC-S 2001 occupations and for each pair of SIC 1980 - NAICS 1997
industries for Canada and for each CMA/CA.
We apply the employment shares to the 1991 data assuming that the employment
structure was the same in 1991 and 2001. This ignores a different distribution of occupations
within each industry. However, it requires an infeasible number of computations to take into
account an individual industry.25 Thus, we take a more parsimonious approach by taking into
account only the difference in the occupational distribution of employment across CMAs/CAs(i.e. we carry out concordance for each CMA/CA). This should not distort our analysis greatly
because a major Chinese import penetration occurred only after the 2000s.26

V.

Empirical Analysis 1: Occupation-Level Direct Effect

A. ModelTo assess the direct effect of the China shock on Canadian employment across skill levels
and skill types, we estimate the following regression equation.

25

The number of computations required to take into account different distributions across industries is 13.3 billion(692 occupations in NOC 1991 x 520 in NOC-S 2001 x 300 industries in NAICS 1997 x 122 CMAs/CAs plus
Canada total).
26
The concordance between NAICS 1997 and NAICS 2007 and that between NOC-S 2001 and NOC-S 2006 are
relatively straightforward for our purpose. Hence, we do not concord them using the same method described here.
Instead, we refer to the concordance tables provided by Statistics Canada.

30

∆𝐿𝑘,𝜏 = 𝛼𝜏 + 𝛽∆𝑂𝐼𝑃𝑘,𝜏 + 𝜀𝑘,𝜏(5)where ∆𝐿𝑘,𝜏 is 100 times the log change (annualized) in employment level in 4-digit occupation
𝑘 over 𝜏.27∆𝑂𝐼𝑃𝑘,𝜏 is 100 times the annual change (percentage-point change) in the Chinese
import penetration for 4-digit occupation 𝑘 over 𝜏. 𝛼𝜏 is a period-specific constant and 𝜀𝑘,𝜏 is anerror term.
To estimate the marginal impact of trade exposure on each skill group, we estimate thefollowing two fully-interacted regressions.28∆𝐿𝑠𝑘,𝜏 = 𝛼𝑠,𝜏 + 𝛽1 ∆𝑂𝐼𝑃𝑘,𝜏 ∙ 𝕀 𝑠 = 𝑕𝑖𝑔𝑕 𝑠𝑘𝑖𝑖𝑙𝑒𝑑 + 𝛽2 ∆𝑂𝐼𝑃𝑘,𝜏 ∙ 𝕀 𝑠 = 𝑚𝑖𝑑 𝑠𝑘𝑖𝑖𝑙𝑒𝑑+𝛽3 ∆𝑂𝐼𝑃𝑘,𝜏 ∙ 𝕀{𝑠 = 𝑙𝑜𝑤 𝑠𝑘𝑖𝑖𝑙𝑒𝑑} + 𝜀𝑘,𝜏(6)

∆𝐿𝑝𝑘,𝜏 = 𝛼𝑝,𝜏 + 𝛽1 ∆𝑂𝐼𝑃𝑘,𝜏 ∙ 𝕀 𝑝 = 𝑚𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡 + 𝛽2 ∆𝑂𝐼𝑃𝑘,𝜏 ∙ 𝕀 𝑝 = 𝑝𝑟𝑜𝑓𝑒𝑠𝑠𝑖𝑜𝑛𝑎𝑙 + ⋯ +𝑘6∆𝑂𝐼𝑃𝑘,𝜏∙𝕀{𝑝=𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛}+𝜀𝑘,𝜏
(7)where 𝑠 and 𝑝 indicate skill level and skill type, respectively. Estimated coefficient 𝛽 represent
the marginal impact of import penetration on employment in a given skill group.
We estimate equation (5), (6), and (7) by two-stage least squares (2SLS) using ∆𝑂𝐼𝑃𝐸𝑘,𝜏
on a pooled sample of occupation-level changes in employment in manufacturing and import
exposure over the two sub-periods: 1991-2001 and 2001-2011. Observations are weighted by
employment levels in 1991, so that occupations with large initial employment receive greater
weight. Standard errors are clustered within 140 three-digit NOC categories.
In order to quantify the direct effect of the China shock, we use our estimated coefficientsfrom the above equations. Based on the coefficients, we compute an estimate of the direct
employment effect for each skill group in Canadian manufacturing sectors.
To benchmark the impact of supply-driven Chinese import shocks on the employment
level in Canada, we use the estimated coefficients to estimate changes in log employment
induced by supply-driven Chinese import penetration over the periods 1991-2001 and 2001-2011,
respectively.
In order to capture the variation induced by supply shocks, we discount the change intrade exposure to China by R-squared from the first stage regression. We define Δ𝑂𝐼𝑃𝑘,𝑡 to be
the portion of the change in occupation 𝑘 's exposure to Chinese import attributable to theChinese export supply shocks. Lastly, we use the observed end-of-period employment level to27

We use employment data from a cross-tabulation of 85 four-digit NAICS manufacturing industries and 494 fourdigit NOC occupations. The cross-tabulations referred here are the ones created after we carry the concordance
between SIC-NAICS and SOC-NOC in our census files.
28
Note that fully-interacted regressions are analogous to regressions on split samples.

31

convert from logs to levels. Hence, the implied employment effect can be seen as the causal
effect of supply-driven increase in Chinese import penetration ratio over the period of interest.
The implied employment effect can be written as the following:
𝐾
𝑐𝑓
Δ𝐿𝑡 =

𝑐𝑓

(𝐿𝑘,𝑡 − 𝐿𝑘,𝑡 )𝑘=

𝐾−𝛽 Δ𝑂𝐼𝑃 𝑘,𝑡)𝑘 𝐿𝑘,𝑡 (1 − 𝑒(8)𝑐𝑓

where 𝐿𝑘,𝑡 is the actual employment level for occupation 𝑘 at time 𝑡 and 𝐿𝑘,𝑡 is thecounterfactual level of employment for occupation 𝑘 at time 𝑡.

B. Summary Statistics
Table 5 reports summary statistics for the three key variables used in the estimation ofequation (5). First, changes in import penetration in Canada and in the eight other advanced
economies are quite similar except for the 1991-2001 period. The distribution of changes inimport penetration across occupations are right-skewed, with the mean increase exceeding themedian by 0.11. This means that there are some occupations with a very large annual increase inimport penetration in our samples. The same is true for the import penetration in the eight otheradvanced economies. It is right-skewed with the mean increase exceeding the median by 0.19.
In both Canada and the comparison countries, Chinese import penetration accelerated
after 2001. The summary statistics for the two measures of import penetration for the sub-period
1991-2001 and 2001-2011 suggest that both measures accelerated after 2001. Their mean andmedian annual change are much higher during the 2001-2011 period. Also, the decline in
employment started to accelerate after 2001.
Table 6 presents the same summary statistics but by skill level over the period 1991-2011.
First, over the 2001-2011 period, all skill groups have a negative mean change in log
employment, which is consistent with the fact that manufacturing industry as a wholeexperienced a decline in employment during this period. Among the three skill groups, lowskilled workers exhibit the fastest mean change in annual log employment, followed by midskilled workers. During the 1991-2001 period, annual change in log employment is highly leftskewed implying that negative means for all three skill levels are due to a small subset ofoccupations experiencing a very large decline in their employment.

32

Across the two sub-periods, high-skilled occupations exhibit the largest mean annualchange in import penetration, followed by low-skilled. As previously shown, most of theoccupations that experienced a large increase in import penetration were either high- or lowskilled (see Section III). Lastly, import penetration increased for all three skill levels after
2001.29
Table 7 summarize statistics by skill type. The two groups with the largest mean change
in import penetration were Technical/paraprofessional and management. They consistently
exhibit the largest mean change in import penetration across the two sub-periods. On the other
hand, professional and trades/construction/transportation exhibit the lowest. Production and otherservices experienced a quite similar degree of change in import exposure over time.
During the 1991-2011 period, the mean change in log employment was the largest for
professional occupations but it was largely driven by the development that occurred during the
1991-2001 period. Following professional occupations are occupations in other services andoccupations in management and production.

29

Note that, we do not see a clear correlation between log change in employment and change in import penetration
at the highly-aggregated level. The high-skilled group had the largest mean increase in import penetration, they had
the largest change in employment. At the same time, low-skilled faced the second largest change in importpenetration but it had the lowest mean change in employment among the three skill groups. Within each skill group,
however, we observe a negative correlation between the two variables at the 4-digit occupation level.

33

Table 5: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio, Manufacturing Industries, Canada
1991-2011 stacked

Sub-periods
1991-2001

2001-2011

1991-2011

Mean

MedianMean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.51

0.40

0.37 / 0.34

0.65 / 0.64

0.55 / 0.51

Instrument for Chinese Import Penetration (% pt)

0.47

0.28

0.25 / 0.20

0.68 / 0.64

0.52 / 0.47

100 x Annual log change in Employment (%)
-1.89
-1.53
-0.49 / 1.44
-3.25 / -2.51-3.59 / -1.68
Note: The annual change in Chinese import exposure is 100 x annual change in import penetration for occupation 𝑘. The instrument is 100 x annual change inimport penetration for occupation 𝑘 based on the average annual absolute change in imports from China in a set of eight comparator countries over the period
indicated. The comparator countries are Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain and Switzerland. Annual growth in employment is
the annualized per cent change in employment level for each 494 four-digit occupations between 1991-2001 and 2001-2011 based on data from the 1991 and2011 census and the 2011 National Household Survey. Observations are weighted by occupation-level employment in 1991.

34

Table 6: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio, by Skill-Level, Manufacturing Industries, 1991-2011 by
sub-period, Canada
1991-2001
High-skilled

Mid-skilled

Low-skilled

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.42 / 0.45

0.35 / 0.28

0.36 / 0.32

Instrument for Chinese Import Penetration (% pt)

0.27 / 0.28

0.23 / 0.18

0.26 / 0.20

100 x Annual log change in Employment (%)-1.55 / 1.95

-0.57 / 1.66

-0.01 / 1.45

2001-2011
High-skilled

Mid-skilled

Low-skilled

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.86 / 0.89

0.58 / 0.59

0.67 / 0.67

Instrument for Chinese Import Penetration (% pt)

0.92 / 0.97

0.62 / 0.56

0.70 / 0.55

100 x Annual log change in Employment (%)-1.53 / -1.39-2.99 / -2.48-3.83 / -3.34

1991-2011 stacked
High-skilled

Mid-skilled

Low-skilled

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.64 / 0.51

0.46 /0.38

0.52 / 0.39

Instrument for Chinese Import Penetration (% pt)

0.60 / 0.36

0.43 / 0.24

0.48 / 0.26

100 x Annual log change in Employment (%)-1.54 / -1.21-1.78 / -1.41-1.92 / -2.05
Note: The annual change in Chinese import exposure is 100 x annual change in import penetration for occupation 𝑘 in a given skill group. The instrument is 100
x annual change in import penetration for occupation 𝑘 based on the average annual absolute change in imports from China in a set of eight comparator countries
over the period indicated. The comparator countries are Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain and Switzerland. Annual growth in
employment is the annualized per cent change in employment level for each 494 four-digit occupations between 1991-2001 and 2001-2011 based on data fromthe 1991 and 2011 census and the 2011 National Household Survey. Observations are weighted by occupation-level employment in 1991.

35

Table 7: Occupation-Level Changes in Employment and Chinese Import Penetration Ratio, by Skill-Type, Manufacturing Industries, 1991-2011 by sub-period,
Canada1991-2001
Management

Professional

Technical andParaprofessional

Other services

Trades, Construction,
Transportation

Production

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.43 / 0.45

0.33 / 0.35

0.53 / 0.41

0.41 /0.39

0.22 / 0.18

0.37 / 0.21

Instrument for Chinese Import Penetration (% pt)

0.28 / 0.29

0.21 / 0.23

0.32 / 0.27

0.30 / 0.25

0.12 / 0.12

0.28 / 0.14

100 x Annual log change in Employment (%)-0.72 / 1.20

-9.82 / -3.95

2.37 / 3.94

-4.62 / -3.38

0.29 / 2.16

2.54 / 3.31

Management

Professional

Technical andParaprofessional

Other services

Trades, Construction,
Transportation

Production

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.90 / 0.93

0.30 / 0.59

0.93 / 0.86

0.74 / 0.75

0.35 / 0.48

0.68 / 0.42

Instrument for Chinese Import Penetration (% pt)

0.94 / 0.97

0.42 / 0.63

1.01 / 0.87

0.80 / 0.78

0.32 / 0.57

0.71 / 0.42

100 x Annual log change in Employment (%)-2.22 / -2.22

0.57 / -1.39-1.47 / -1.29-3.18 / -3.34-2.39 / -2.38-4.81 / -4.11

Trades, Construction,
Transportation

Production

2001-2011

Management

Professional

1991-2011 stacked
Technical andParaprofessional Other services

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Mean/Median

Annual change in Chinese Import Penetration (% pt)

0.67 / 0.51

0.32 / 0.35

0.73 / 0.56

0.58 / 0.48

0.29 / 0.23

0.52 / 0.30

Instrument for Chinese Import Penetration (% pt)

0.61 / 0.36

0.32 / 0.27

0.67 / 0.37

0.55 / 0.32

0.22 / 0.14

0.50 / 0.22

100 x Annual log change in Employment (%)-1.47 / -1.34-4.96 / -1.52
0.45 / 0.63
-3.90 / -3.34-1.05 / -1.57-1.14 / 0.01
Note: The annual change in Chinese import exposure is 100 x annual change in import penetration for occupation 𝑘 in a given skill group. The instrument is 100 x annualchange in import penetration for occupation 𝑘 based on the average annual absolute change in imports from China in a set of eight comparator countries over the period
indicated. The comparator countries are Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain and Switzerland. Annual growth in employment is the annualized
per cent change in employment level for each 494 four-digit occupations between 1991-2001 and 2001-2011 based on data from the 1991 and 2011 census and the 2011
National Household Survey. Observations are weighted by occupation-level employment in 1991.

36

C. Results
1. Regression results

We start by estimating the marginal effect of the China shock on the overall employment
in Canadian manufacturing industries. Table 8 presents the results from estimating equation (5)by stacking the time periods 1991-2001 and 2001-2011. Alongside these estimates, we alsopresent the results based on the two sub-periods: 1991-2001 and 1991-2001. These additional
results based on the sub-periods allow us to examine the results before and after thecommencement of the substantial rise in Chinese import competition in Canada.
In column (1), we only include the time dummies which reflect the mean annual growth
rates of employment in each of the sub-periods. We observe that the time dummy for the 20012011 period is statistically significantly negative while that for the 1991-2001 is not statisticallydifferent from zero. This is consistent with our observation earlier that the employment in
manufacturing did not experience any notable downward trend during the 1991-2001 period.
Column (2) adds the observed change in import penetration without instrumentation. We see theestimated coefficient for the import penetration is negative but not statistically significant.
As noted earlier, the OLS estimate could be biased since growth in import could havebeen driven partly by changes in domestic supply and demand. Hence, in column (3) we mitigate
the simultaneity bias by instrumenting the change in import penetration in Canada by thechanges in import penetration in the eight comparison countries. Based on our 2SLS estimate, thecoefficient for the change in import penetration is negative and statistically significant at 5 percent significance level. The estimation implies that a 1 percentage point rise in the occupationspecific import penetration ratio reduces manufacturing employment growth by 1.17 percentage
points per year.30
Columns (4) to (7) display bivariate estimates separately by sub-period. First, we findthat the Chinese import penetration did not play any significant role in driving the employment
growth in manufacturing before 2001. Our estimation indicates that, during the 1991-2001 period,
there was no significant impact of rising occupation-specific import penetration on the
manufacturing employment. However, we find a negative and statistically significant impact of arise in import penetration on occupations in manufacturing industries: a 1 percentage-point risein import exposure leads to a 1.34 percentage point annual decline in employment growth foroccupations in manufacturing. These results suggest that our main results from column (3) aremainly driven by the 2001-2011 data points.

30

Note that the smaller magnitudes of the impact estimated based on OLS (i.e. column 3 and 5) are consistent with
our prediction that the estimate is likely to be biased downwardly without instrument due to exogenous productdemand shocks driving up both employment and imports from China.

37

Table 9 presents the 2SLS estimation results by skill level. Column (1) shows the resultsfrom our stacked model for the 1991-2011 period. During the 1991-2011 period, occupations in
the low-skilled group were negatively affected by the rising Chinese import competition. A 1percentage-point increase in occupation-specific import penetration reduces the annual
employment growth in low-skilled occupations by 1.73 percentage points. We find no statisticalevidence that high- and mid-skilled are negatively affected by rising Chinese import penetration.
By sub-periods, we find that only the low-skilled occupations had a statisticallysignificant impact from Chinese import competition during the 1991-2001. Note that theemployment growth in this skill group is positively affected by the rising Chinese importcompetition. Further investigation reveals that such positive relationship is driven by six
influential occupations.31 Those six low-skilled occupations had large increases in the Chinese
import penetration ratio during 1991-2001 (an annual change of 0.8 to 1.3 percentage-point) but
did not experience a decline in their employment. If we fit a regression line separately for the
low-skilled occupations excluding them, we observe a negative relationship. 2SLS estimates
based on the sample without those six occupations indicate that there is indeed a negative
relationship although the coefficient (-0.88) is not significant at any conventional significancelevel (t statistics = -0.72).
For the 2001-2011 period, the results are consistent with those from the stacked model: a
1 percentage-point increase in import penetration ratio reduces the employment growth in lowskilled occupations by 2.24 percentage points per year, respectively. Again, it seems that our
main results from the stacked model are mainly driven by the data points in the 2001-2011
sample, the period associated with a rapid rise in Chinese import penetration in Canada.
For high- and mid-skilled occupations in manufacturing, the rising Chinese importpenetration does not have any statistically significant effect on their employment. Such findings
can be understood by noting that a majority of Chinese manufacturing goods exported to Canada
had been in low-tech or low value-added replacing similar goods produced by Canadian firms.
At the same time, Canadian manufacturing sectors might have shifted towards high-tech andhigh value-added niches in the face of the rising Chinese import competition. This is consistent
with the pattern we find in Section III-- expanding high- and mid-skilled and contracting lowskilled both in terms of growth and share of total manufacturing employment.
Again, skill level is just one way to characterize occupations. We find above that themarginal employment effect is the greatest for low-skilled occupations. However, low-skilledoccupations consist of more than one skill type (e.g. technical/paraprofessional, other service,trades/construction/transportation and production). Estimating the marginal employment effect inskill-type dimension would be informative.
31

Note that there are 155 low-skilled occupations in the sample. The six occupations include the following 4-digit
NOC occupations: Dry cleaning, laundry, ironing, pressing, and finishing occupations (Other elemental service
occupations); Sewing machine operators; Fabric, fur and leather cutters; Inspectors and testers, fabric, fur andleather products manufacturing (Machine operators and related workers in fabric, fur, and leather products
manufacturing); Electronics assemblers, fabricators, inspectors and testers (Mechanical, Electrical, and Electronics
Assemblers); Other labourers in processing, manufacturing and utilities (Labourers in processing, manufacturing,and Utilities).

38

Table 10 presents the results by skill type. Based on the stacked model (column 1), we
find that a rise in import penetration ratio has a negative and statistically significant impact onannual employment growth in all skill types except for management, professional, and technicaland paraprofessional. Notably, the impact on the occupations in other services is estimated to bevery large: 2.96 percentage-point decline in response to a 1-percentage-point increase in theirimport penetration ratio.
Note that none of the marginal effects appears to be statistically significant if the model isestimated based on the 1991-2001 period (column 2). When we focus on the period when
Chinese import penetration rose substantially (i.e. 2001-2011, column 3), we find thatoccupations in technical/paraprofessional, other services, and production had a statisticallysignificant impact from the China shock. A 1-percentage-point increase in import penetration
reduced employment growth by 0.81 percentage points per year for occupations intechnical/paraprofessional; 3.07 percentage point per year for occupations in other services; and1.96 percentage point per year for occupations in production. Again, it appears that our main
results from the stacked model are mainly driven by the data points in the 2001-2011 sample.

39

Table 8: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in Manufacturing Industries, Canada: OLS and 2SLS
Estimates
Stacked Differences

By Sub-periods

1991-2001 and 2001-2011(1)

1991-2001

1991-2001

2001-2011

2001-2011(4)
1.64(1.06)(5)
0.48(1.26)(6)-0.87*(0.52)(7)-1.34**(0.66)

-

-

-

-

-1.21
(0.77)-3.57***(0.46)-3.27***(0.52)-1.04(0.71)-3.11***(0.85)(2)-0.57(0.44)-0.83(0.72)-2.95***(0.85)(3)-1.17**(0.54)-0.60(0.72)-2.77***(0.85)

Constant----1.64**(0.75)

Obs.

877

877

877

438

438

439

439

Estimation Method

OLS

OLS

2SLS

OLS

2SLS

OLS

2SLS

Annual change in Chinese Import Penetration
1{1991-2001}
1{2001-2011}

First-stage F Statistic158.3660.60
294.33
Note: In all specifications, the dependent variable is the average annual growth rate of employment by four-digit occupation over the specified period. The
number of observations in our sample for the regression is 438 (56 dropped) for the period 1991-2001 and 439 (55 dropped) for the period 2001-2011. This isdue to the fact that some occupations have zero employment in all manufacturing sectors across the census years we consider. Examples are: Legislators; Senior
managers - Financial, communications, and other business services; Court officers and justice of the peace; and Post-secondary teaching and research
assistants. Standard errors in parentheses are clustered on 140 three-digit occupation groups. Observations are weighted by occupation employment in 1991.
* p<0.10** p <0.05*** p<0.01

40

Table 9: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in Manufacturing Industries by Skill-Level, Canada: OLS
and 2SLS Estimates
Stacked Differences, 1991-2011
1991-2001
2001-2011
(1)
(2)
(3)
Annual change in Chinese Import
Penetration
-0.29
5.27
-0.50
High-skilled(0.70)(6.20)(0.83)
-0.11
-1.20
-0.08
Mid-skilled(0.20)(2.46)(0.20)-1.73**
1.94**-2.24**
Low-skilled(0.86)(0.96)(1.04)
Obs.

885

442

443

Estimation Method

2SLS

2SLS

2SLS

First-stage F Statistic
2263.344275.62733.24
Note: In all specifications, the dependent variable is the average annual growth rate of employment by four-digit occupation in the specified skill group over the
specified period. Some of the observations are dropped as they have zero employment in all manufacturing sectors across the census years we consider. In
column (1), the period dummy is interacted with the dummy for skill levels. In column (2) and (3), the constant term is interacted with the dummy for skill levels.
Standard errors in parentheses are clustered on 140 three-digit occupation groups. Observations are weighted by occupation employment in 1991.
* p<0.10** p <0.05*** p<0.01

41

Table 10: Effect of Chinese Import Penetration on Log Employment in 4-digit occupations in Manufacturing Industries by Skill-Type, Canada: 2SLS
Estimates
Stacked Differences, 1991-2011
1991-2001
2001-2011
(1)
(2)
(3)
Annual change in Chinese Import
Penetration
1.34
-2.53
1.57
Management(2.52)(10.24)(2.68)
1.89
21.17
1.79
Professional(2.36)(41.78)(2.60)-0.72*
0.86-0.81*
Technical and Paraprofessional(0.38)(1.37)(0.41)-2.96**-1.68-3.07**
Other Services(1.21)(6.73)(1.35)
-1.00
-4.31
-0.83
Trades, Construction, and Transportation(0.88)(2.80)(0.84)-1.49*
1.77-1.96**
Production(0.87)(1.18)(0.90)
Obs.

885

442

443

Estimation Method

2SLS

2SLS

2SLS

First-stage F Statistic
6439.98
64.67
91.63
Note: In all specifications, the dependent variable is the average annual growth rate of employment by four-digit occupation in the specified skill group over the
specified period. Some of the observations are dropped as they have zero employment in all manufacturing sectors across the census years we consider. In
column (1), we also control for the period dummy interacted with the dummy for skill types. In column (2) and (3), the constant term is interacted with thedummy for skill types. Standard errors in parentheses are clustered on 140 three-digit occupation groups. Observations are weighted by occupation employment
in 1991.
* p<0.10** p <0.05*** p<0.01

42

2. Implied employment effects
Using the estimated coefficient in column (3) in Table 8, we estimate the total number ofmanufacturing jobs in Canada that did not exist in 2011 as a result of the increase in Chinese
import competition over the 1991-2011 period. Here, we rely on Equation (8) along with the Rsquared from the first-stage regression. We also estimate the employment effect by skill leveland by skill type based on the estimated coefficient from column (1) in Table 9 and Table 10.32
Table 11 presents the estimated employment effect for occupations in manufacturingsectors. First, row (1) displays the employment effect for all occupations. During 1991-2011, therising import competition from China led to a net loss of 198.7 thousand manufacturing jobs in
Canada. Over the two decades, 85.2 thousand jobs were lost during 1991-2001 and 113.5
thousand jobs were lost during 2001-2011.
To contextualize the loss, we compare our estimates to the actual change inmanufacturing employment over the period. Between 1991-2011, employment in manufacturing
declined by 330.4 thousand. Our estimate implies that 60.1 per cent of the total job loss in
manufacturing was due to the rising Chinese import competition. For the 2001-2001 period, 22.4
per cent of the total job loss was due to the rising import competition from China.33
Row (2) shows the employment effect by skill level. As implied by our estimatedcoefficient, low-skilled occupations experienced the largest job loss over the 1991-2011 period.
According to our estimate, Chinese import competition accounted for a net loss of 166.2
thousand jobs in low-skilled occupations during this period. Had there been no increase in the
Chinese import competition (and all other factors in the economy remained the same), thedecline in low-skilled employment would have been 49.9 thousand instead of 216.6 thousand.
This means that 76.9 per cent of the decline in low-skilled jobs in manufacturing was due to theChinese import competition. This compares to 37.6 per cent for the high-skilled (10.0 thousand
loss / 26.6 actual decline) and 5.7 per cent for the mid-skilled (5 thousand loss / 87.7 thousand
actual decline).34

32

Following Acemoglu et al. (2016) and Murray (2017), we compute employment effects using both statisticallysignificant and insignificant coefficients from the stacked model.
33
Compared to the estimates for the United States (Acemoglu et al., 2016), our estimates imply twice as large
impact of the China shock on the manufacturing employment during the 2001-2011 period. Their estimate suggests
9.7 per cent of the total decline in the U.S. manufacturing sector was due to Chinese import penetration. Somepotential reasons for such difference would be: 1. the mean annual increase in import penetration for Canadianmanufacturing was higher than that for the U.S. (0.65 percentage point vs. 0.50 percentage points); 2. the portion of
the variation in Chinese import penetration that is driven by supply shocks was much higher than the case for the
U.S. (82 per cent vs. 56 per cent).
34
One should not give too much weight on the estimates on these two group since they are based on statisticallyinsignificant coefficients. One may assume that the employment effect on the two is essentially zero.

43

Table 11: Implied Employment Changes Induced by Changes in Chinese Import Penetration, thousand, by Skill level and Skill type, Manufacturingsectors, Canada
Counterfactual ∆Actual ∆Implied Employment EffectOccupation Group(s)in employment levelin employment level1991200119911991200119911991200119912001
2011
2011
2001
2011
2011
2001
2011
2011
(1) All occupations

258.0-392.4-134.4175.5-505.9-330.4-85.2-113.5-198.7High-skilled

13.3

-29.9

-16.6

9.9

-36.5

-26.6

-3.4

-6.6

-10.0

Mid-skilled

50.4-133.1

-82.7

48.1

-135.8

-87.7

-2.3

-2.7

-5.0

Low-skilled

194.0-243.8

-49.9

117.6

-333.6-216.1

-76.4

-89.8

-166.2

Management

-7.7

-45.6

-53.3

1.3

-30.4

-29.1

9.0

15.2

24.2

Professional

-23.4

-3.3

-26.7

-20.9

0.1

-20.8

2.5

3.4

5.9

Technical/Paraprofessional

58.1

-8.1

50.0

50.7

-20.2

30.5

-7.4

-12.1

-19.5

Other services-101.3-8.7-110.0-139.7-66.3-206.0

-38.4

-57.6

-96.0

Trades/Construction/Transportation

42.8

-70.1

-27.3

35.0

-82.1

-47.1

-7.8

-12.0

-19.8

(2) By Skill Level(3) By Skill Type

Production
299.2-255.244.0
249.1-307.0
-57.9
-50.1
-51.8
-101.9Note: Counterfactual changes represent the changes in employment level had there been no change in Chinese import penetration. Following Acemoglu et al.
(2016) and Murray (2017), the quantity is computed based on both statistically significant and insignificant coefficients from our stacked models. Note that eachrow represents a different specification: row (1); row (2); and row (3). An implied effect is computed (separately) using 2SLS estimates from the corresponding
row specification. Thus, implied effects on individual groups do not sum exactly to the quantities based on row (1) specification. Predictions for 1991-2011 isequal to the sum of the predictions for the two sub-periods. The unit of analysis is 4-digit NOC occupations.

44Note that Chinese import competition rose significantly from the early 2000s. During thisperiod, Chinese import competition accounted for a loss of 89.8 thousand jobs in low-skilledoccupations. In this period, low-skilled employment declined by 333.6 thousand. This means that
26.9 per cent of the decline in low-skilled jobs in manufacturing was due to the Chinese importcompetition. This compares to 18.1 per cent for the high-skilled and 2.0 per cent for the midskilled.
Next, we examine the employment effect by skill type. Over the 1991-2011 period,
production occupations had the largest net loss due to the China shock (101.9 thousand). The
ratio of implied employment effect to the actual change in their employment reaches 176.0 per
cent over the 1991-2011 period. They are closely followed by occupations in other services: aloss of 96.0 thousand due to Chinese import competition. For other service, the loss accounts for46.6 per cent of the total decline in its employment over 1991-2011.35 Among the skill types witha statistically significant marginal effect, technical/paraprofessional had the smallest negative
employment effect. 36 The employment in that skill group fell by 19.5 thousand due to trade with
China over the two decades. However, the employment in that skill group actually increased overthe period. Hence, had there been no Chinese import penetration, we would have seen an
increase of 50.0 thousand instead of 30.5 thousand.
Over the 2001-2011 period, jobs in other services had the largest net loss due to the
China shock (57.6 thousand). This accounts for 86.9 per cent of the total decline in theiremployment over the period. Occupations in production had a comparable job loss (51.8
thousand) but relative to the actual decline in their employment, the role of Chinese importpenetration appears to be smaller than it does for other services. We had an actual decline of
307.0 thousand jobs in these occupations implying that a trade-induced loss accounts for 16.9 percent of the actual decline. For occupations in technical and paraprofessional, Chinese importpenetration led to a loss of 12.0 thousand jobs accounting for 59.9 per cent of the total decline
observed during the 2001-2011 period.
The key message from our results is that the job loss in manufacturing due to Chinese
import competition was not equally distributed across skill groups. It appears that the negative
effect on the manufacturing employment is driven by particular skill groups withinmanufacturing. In the skill level dimension, low-skilled occupations had the largest decline intheir employment due to imports from China over the 2001-2011 period. They explain nearly 80
per cent of the total decline in the manufacturing employment.
In the skill-type dimension, occupations in production, other services, andtechnical/paraprofessional account for most of the job loss occurred in manufacturing.
Additionally, the importance of Chinese import penetration in explaining the observed decline intheir employment is found to vary across the three skill groups. Production occupations
experienced a substantial decline in their employment in the absolute level. Nevertheless, job
35

Note that service occupations had a quite large decline in their employment during the 1991-2001 period leaving
the proportion explained by Chinese import penetration relatively small among the skill types during the full-span of
1991-2011.
36
We avoid to discuss the rest of the groups since the marginal impact on their employment is not statisticallysignificantly different from zero.

45

loss was proportionally larger for other services and technical/paraprofessional as the tradeinduced job loss accounts for a larger share in the total decline in their employment.37
Our estimates also have important implications for the "employment polarization" often
observed in advanced economies. For example, Autor and Dorn (2013) find that technologicalprogress led to "employment polarization" in the United States such that low-skilled labour
moved from goods-producing (involving routine-tasks) to low-skilled services while high-skilled
labour remained where they are. Hence, we observe a strong U-shape employment growth inskill level leaving the mid-skilled labour with relatively low employment growth. In this section,
we find that trade did not play a role in inducing "employment polarization" in Canada since it
was only the low-skilled group that experienced a significant trade-induced job loss.
We end this section with two caveats worth noting. First, the estimates presented in Table
11 are based on the estimated marginal effect over the 1991-2011 period. This means that we
impose the same marginal effect on employment growth in both the 1991-2001 and 2001-2011
sub-periods. However, we know from Table 8 - 10 that the marginal effect of Chinese importcompetition is estimated to be different across the two sub-periods. Relevant groups are lowskilled occupations and occupations in the four skill types with statistically significant
coefficients based on the 2001-2011 period. During the 1991-2001 period, employment growthin these groups were not affected by Chinese import penetration (if we exclude few influential
observations in low-skilled as discussed earlier). However, these skill groups experienced anotable marginal employment effect of Chinese import competition during the 2001-2011 period.
Hence, we acknowledge that the total direct effect on the employment of the those groups over
the two decades may be smaller than our estimates reported in Table 11. However, this does notaffect our conclusion that during 2001-2011 since the estimated effects are quite similar to those
based on the stacked model (1991-2011).
Another caveat is that total employment effect in row (1) in Table 11 is not necessarilyequal to the sum of the employment effect across the three skill levels in row (2) or across the six
skill types in row (3). The reason is that in row (1), we impose the same marginal effect of tradeon all occupations regardless of skill levels or skill types while in row (2) or row (3), we allow
the marginal effect to differ across skills based on the estimated coefficients in column (1) in
Table 9 and Table 10, respectively. Hence, the sum of implied employment effects reported ineach row would not necessarily be the same (see Equation 8). For example, the total implied
employment effect based on row (2) specification is -82.1 thousand for 1991-2001 and -99.1
thousand for 2001-2011. Based on row (3) specification, the total effect is -92.2 thousand for
1991-2011 and -114.9 thousand for 2001-2011. These estimates are smaller than the estimatesreported in row (1). Hence, we conclude that -92.2 thousand and -82.1 thousand to be the lower
and upper bound of our estimate for the job loss during the 1991-2001 period; and -114.9
thousand and -113.5 thousand for the job loss during the 2001-2011 period.
37

One might argue that some of the decline in low-skill or production occupations is driven simply by areclassification of jobs to a higher skill level or to other skill type as the classification system changes over time.
However, we find that the national occupation classification system is relatively consistent over time especiallybetween the NOC 2001 (used for 2001 data) and NOC 2006 (used for 2011 data). The occupation classification
systems used for the period 2001-2011 are almost identical to each other in terms of classification of skill types andskill levels.

46

VI.

Empirical Analysis 2: Indirect Effect Operating within Local LabourMarkets
A. ModelIt is important to realize that an analysis based on the manufacturing industries would
miss some important spillover effects on industries beyond manufacturing. As discussed in
Section II, a trade-induced reduction in manufacturing employment may lead to an increase inemployment in another industry as labour is reallocated. At the same time, a trade shock may
reduce the incomes of displaced workers. This may lead to a decline in demand for output
produced in other industries and hence, a decline in employment in those industries as well.
In this section, we are interested in assessing the net effect of the China shock on
employment for each occupation group, taking into account possible spillovers to unaffectedindustries. Following Autor et al. (2013) as a general framework, we estimate how theemployment of each occupation group in manufacturing and non-manufacturing sectors
responded to the import shock over time within local labour markets.38 It will shed some light on
how resilient a given occupation group had been in the face of rising Chinese import competition
within local labour markets.39
We treat local labour markets as subeconomies subject to differential trade exposure
according to initial patterns of employment across different occupations. Then, we exploit
variations in local employment rate and locality's trade exposure across the local labour markets
in Canada to estimate the marginal employment effect of import competition. Here, the sample is
no longer restricted to the occupations in the manufacturing industries. We first present ourbaseline specification to measure employment rate response at the local level:𝑗𝐿∆𝐸𝑙,𝜏 = 𝛼𝜏 + 𝛽∆𝐼𝐸𝑙,𝜏
+ 𝛾𝑋𝑙,𝜏 + 𝜖𝑙,𝜏(9)where ∆𝐸𝑙,𝜏 is the annual percentage-point change in the employment rate (i.e. the ratio of total
employment to the working-age population, defined as the population aged 15 or over) in sector𝐿𝑗 (manufacturing or non-manufacturing) in locality 𝑙 over time period 𝜏. 40 ∆𝐼𝐸𝑙,𝜏
is the annual
percentage-point change in locality 𝑙's exposure to Chinese import over 𝜏. 𝑋𝑙,𝜏 is a vector of
locality-specific control variables which we will specify later.

38

Our definition of locality is the census metropolitan area or census agglomeration (CMA/CA).
Note that our framework can capture but cannot explicitly show the effect of individual worker being re-employed
in different skill group from the group in which he or she was previously employed. A worker-level panel structure
in our data would be necessary for such study.
40
We use a cross-tabulation of 494 four-digit NOC occupations and 300 four-digit NAICS industries (303 industries
for 2011) for each of 122 CMAs/CAs as well as working-age population in each CMAs/CAs from the censuses. The
cross-tabulations referred here are the ones created after we carry the concordance between SIC-NAICS and SOCNOC in our census files.
39

47

To estimate the marginal effect by skill group, we estimate the following equations:𝑗𝐿𝐿∆𝐸𝑠,𝑙,𝜏 = 𝛼𝑠,𝜏 + 𝛽1 ∆𝐼𝐸𝑙,𝜏
∙ 𝕀 𝑠 = 𝑕𝑖𝑔𝑕 𝑠𝑘𝑖𝑙𝑙𝑒𝑑 + ⋯ + 𝛽3 ∆𝐼𝐸𝑙,𝜏
∙ 𝕀 𝑠 = 𝑙𝑜𝑤 𝑠𝑘𝑖𝑙𝑙𝑒𝑑+𝛾𝑋𝑠,𝑙,𝜏 + 𝜀𝑠,𝑘,𝜏
(10)

𝑗

𝐿
𝐿
∆𝐸𝑝,𝑙,𝜏 = 𝛼𝑠,𝜏 + 𝛽1 ∆𝐼𝐸𝑙,𝜏
∙ 𝕀 𝑝 = 𝑚𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡 + ⋯ + 𝛽6 ∆𝐼𝐸𝑙,𝜏
∙ 𝕀 𝑝 = 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛+ 𝛾𝑋𝑝,𝑙,𝜏 + 𝜀𝑝,𝑘,𝜏
(11)

where 𝑗 represents industry (manufacturing or non-manufacturing); 𝑠 and 𝑝 represent skill leveland skill type of a given occupation, respectively. 𝑋 includes fixed effects for six regions (theAtlantic region, Quebec, Ontario, the Prairie region, British Columbia, and the Northern region)and the initial share of a locality's employment that is in manufacturing.
Local labour markets differ in their trade exposure due to variation in the importance of𝐿
different occupations (in manufacturing sectors) for local employment. The variation in ∆𝐼𝐸𝑙,𝜏
across local labour markets stems entirely from variation in local occupational employment
𝐿structure at the start of period 𝜏. Specifically, we construct ∆𝐼𝐸𝑙,𝜏
as the following:𝐿∆𝐼𝐸𝑙,𝜏
=𝐾 𝐿𝑙,𝑘 ,𝜏∆𝑂𝐼𝑃𝑘,𝜏
𝑘=1 𝐿
𝑙,𝜏

(12)

where 𝐿𝑙,𝑘,𝜏 is the number of employed workers in occupation 𝑘 in manufacturing sectors inlocality 𝑙 at the start of 𝜏 and 𝐿𝑙,𝜏 is the number of employed workers in locality 𝑙 at the start of𝐿𝜏.41 The instrument for ∆𝐼𝐸𝑙,𝜏
is obtained by replacing ∆𝑂𝐼𝑃𝑘,𝜏 with ∆𝑂𝐼𝑃𝐸𝑘,𝜏 in Equation (4).
If the degree of mobility response of working-age population is small to an adverse trade
shock, then a trade-induced decline in manufacturing employment should yield a corresponding
rise in either non-manufacturing employment, unemployment, labour force exit, or somecombination of the three. By estimating equation (9), (10), and (11) separately for manufacturing
and non-manufacturing, we pay particular attention to how much of the change in nonmanufacturing employment is induced by the China shock.42 This will represent the combinationof labour reallocation and negative demand effect of Chinese import penetration operating within
a local labour market. In other words, we assess the relative importance of the two effects.
Together with the degree of change in manufacturing employment due to the same shock,we can then assess the degree of resiliency of each occupation group. For example, if a given
skill group had a decline in its employment in manufacturing but had a comparable increase in
the employment in non-manufacturing, we can say that the labour reallocation to that skill group𝐿
We also constructed the ∆𝐼𝐸𝑙,𝜏
as the employment-weighted average of our industry-level import competition
measure following Murray (2017). Statistical properties of the two variables are very similar and our general resultsin this section is not altered when we adopt the one from Murray (2017).
42
We assume that no industry in non-manufacturing industries faced a direct exposure to Chinese importpenetration. This is a plausible assumption since the manufacturing share of total imports from China is 98.4 percent on average over the 1992-2015 period.
41

48

in unaffected sectors was successful mitigating the aggregate job loss in response to a trade
shock.43 On the other hand, if there was no corresponding increase (or even a reduction) in
employment in other sectors, this implies that negative demand effects presumably inhibit labour
reallocation to that group in unaffected sectors to some extent. Some portion of the displaced
workers would either stay unemployed or exit the labour force. Note, however, that the above
interpretation requires the assumption that local labour markets are not well-integrated such thatan initial local impact does not rapidly diffuse across regions.44
Similarly, using our estimated coefficient (𝛽 ), we compute the implied employment
effect as follows. Let Δ𝐼𝐸𝑙 𝑡 denote the portion of the change in import penetration to locality 𝑙over time period 𝑡 that is attributable to the Chinese export supply shocks:
𝐿
𝑐𝑓
Δ𝐿𝑡 =

𝑐𝑓

Δ𝐿𝑙,𝑡
𝑙

=

𝐿
𝑙 𝑃𝑂𝑃𝑙,𝑡 𝛽 Δ𝐼𝐸𝑙 𝑡 ∙ 0.01

(13)

where 𝑃𝑂𝑃𝑙,𝑡 is the working-age population in locality 𝑙 at the end of period 𝑡. We measure
Δ𝐼𝐸𝑙 𝑡 by discounting the observed change in local trade exposure by the R-squared from our
first-stage regression. We multiply the quantity by 𝑃𝑂𝑃𝑙,𝑡 and 0.01 since 𝛽 Δ𝐼𝐸𝑙 𝑡 represent a
percentage-point change in employment rate over period 𝑡.
The implied employment effect estimated by Equation (13) capture not only the direct
impact of Chinese but also the net effect of inter-industry labour reallocation and demand
spillover effects operating within local labour markets. Again, it will not capture the effects
operating at a broader level (at the provincial or national levels).

B. Summary Statistics
Summary statistics for the variables are reported in Table 12. The rising Chinese importcompetition after 2001 is evident; the mean annual change in Chinese import penetration ratio is0.05 percentage points over the 1991-2001 period and 0.10 percentage points over the 2001-2011
period. It also shows the turnaround in employment growth after 2001 we discussed in the earlier

43

Note that the reallocation to this skill group can occur from not only the same skill group but also from other skill
groups in manufacturing.
44
We ran a crude regression in which we regressed annual growth of local working-age population (population aged
15 or over) on annual change in local's trade exposure to China controlling for regional difference in time trend as
well as initial manufacture share of the local employment. We find no statistically significant response of local
working-age population growth to an increase in trade exposure (based on 2SLS). Hence, the mechanism describedin the text is valid for most of the labour markets across Canada on average. However, there could be some local
labour markets for which across-localities reallocation is important. For example, depending on the performance ofgas and oil sectors, there could be a large degree of labour reallocation between British Columbia and Alberta.

49

section; across all industries, the annual change in the employment rate averaged 0.06 percentage
points over the 1991-2001 period and -0.20 percentage points over the 2001-2011 period.
The breakdown of employment rate changes by skill levels reveals that this turnaround
was largely driven by low-skilled occupations. During the 2001-2011 period, the mean annual
employment rate change was -0.31 percentage points for low-skilled occupations, down from themean change of 0.03 percentage points over the earlier period. In contrast, the mean changes in
employment rate for high- and mid-skilled occupations were -0.10 and -0.20 respectively during
the 2001-2011 period, down from 0.10 and 0.03 percentage points respectively over the 19912001 period. By skill types, the turnaround was largely driven by occupations in other services.
Their employment rate had the mean annual change of -0.23 percentage points over the 20012011 period, down from -0.03 over the earlier decade. Occupations in the other skill types
experienced a smaller degree of decrease in their mean employment rate changes between thetwo sub-periods.
Although not shown in Table 12, we also find that a greater increase in local trade
exposure is associated with a lower growth in the local employment rate and vice versa. Chart 6
displays a scatter plot for the two variables across 122 CMAs/CAs in our sample over the full
1991-2011 span. A negative relationship between the two variables is evident. Also, the localities
with large annual percentage-point changes in trade exposure tend to be in Quebec and Ontario.
This pattern reflects the relative concentration of manufacturing sectors in the two provinces.45
Chart 6: Annual change in local employment rate and annual change in local trade
exposure, 1991-2011, Canada’s CMAs/CAs, percentage point

Source:Author's calculation based on the online trade data base maintained by Innovation, Science, andEconomic Development Canada and the 1991 and 2001 censuses and 2001 National Household Survey

45

We omit detailed discussion on trends in local employment rates and local import penetration ratios. Refer to
Murray (2017) .

50

Table 12: Summary Statistics on Changes in Employment Rates and in Chinese Import Penetration across Local Labour Markets, All Industries, 19912011, % point
1991-2011

1991-2001

2001-2011

Mean

S.D.

Median

Mean

SD

Mean

SD

Annual change in Chinese Import Penetration

0.08

0.05

0.07

0.05

0.03

0.10

0.05

Instrument for annual change in Chinese Import Penetration

0.07

0.06

0.06

0.03

0.02

0.11

0.06

-0.07

0.23

-0.06

0.06

0.19

-0.20

0.20

High-skilled

0.00

0.18

-0.02

0.11

0.14

-0.10

0.14

Mid-skilled

-0.08

0.21

-0.09

0.03

0.17

-0.20

0.18

Low-skilled

-0.14

0.28

-0.13

0.03

0.22

-0.31

0.21

Management

-0.03

-0.02

0.09

0.03

0.06

-0.09

0.08

Professional

0.02

-0.01

0.08

0.05

0.08

-0.01

0.07

Technical/Paraprofessional

0.02

0.10

0.01

0.09

0.08

-0.05

0.07

Other services

-0.13

0.25

-0.09

-0.03

0.22

-0.23

0.24

Trades/Construction/Transportation

-0.05

0.11

-0.05

0.01

0.09

-0.10

0.09

Annual change in Employment Rate
(1) All occupations(2) By Skill Level(3) By Skill Type

Production
-0.05
0.13
-0.06
0.03
0.12
-0.13
0.10
Note: The annual change in Chinese import exposure is the employment-weighted mean (within the locality) of the occupation-level import exposure penetration
ratio. The instrument is computed similarly but using imports to the eight advanced economies as described in the main text. The employment rates by locality
are measured as 100 x the locality's total employment in each skill group divided by the locality's population aged fifteen and over. The variables in the table are
the annual percentage-point differences over the time periods specified. The samples are 122 CMAs/CAs. Observations are weighted by the locality's workingage population in 1991

51

C. Results
1. Regression results
First, we report the results from estimating Equation (9), our baseline specification.
Focusing on the 2SLS estimate in column (1) in Table 13, a 1-percentage-point increase inannual change in locality’s trade exposure reduces the annual change in local employment rate(all industries) by 0.43 percentage points. Within manufacturing, the employment rate is reduced
by 3.01 percentage-points in response to a 1-percentage-point increase in annual change inlocality's exposure to import. Such decline is somewhat mitigated by a rise in employment rate in
non-manufacturing. The employment rate in non-manufacturing increases by 2.15 percentage
points in response to a 1-percentage-point increase in locality trade exposure to China. Thissuggests that the labour reallocation could be quite effective within most of the 122 CMAs/CAs.

Table 13: Effect of Import Penetration on Employment in Canadian Local Labour Markets, All Occupations,
All Industries, 1991-2011 stacked model: 2SLS Estimates
Employment Rate (all occupations)

CMA/CA import exposure
Obs.

All industries-0.43(0.52)

Manufacturing-3.01***(0.56)

Non-manufacturing

488

244

244

2.15**(0.94)First-stage F statistics
898.80878.07878.07
Note: The number of observation is 488 (122 CMA/CA's x two sectors x two time periods). The dependent variable
is the annual percentage-point change in the employment rate within a CMA/CA over the 1991-2001 and 2001-2011
periods. We include period and region dummies (the Atlantic region, Quebec, Ontario, the Prairie region, British
Columbia, and the Northern region) as well as the initial share of a locality's employment that is in manufacturing.
Standard errors in parentheses are clustered on 122 CMAs/CAs.

Table 14 reports the results from estimating Equation (11) - by skill level. Here, weestimate the marginal impact of an import shock on the change in local employment rate of eachskill group in affected and unaffected sectors (i.e. manufacturing and non-manufacturing)
respectively. According to column (1), there is no statistically significant relationship between
local trade exposure and employment rates in high- and mid-skilled occupations in all industries.
In contrast, the employment rate of low-skilled occupations in all industries decreases by 0.59
percentage points per year in response to a 1-percentage-point annual increase in local trade
exposure. The estimated coefficient is highly statistically significant. This implies that local
demand effects prohibit a complete labour reallocation to low-skilled occupations in unaffected
sectors within local labour markets.

52The breakdown by the two industries supports the above implication. Column (2) reports
the estimates for manufacturing. As expected, all skill levels are negatively affected by trade
shocks in terms of their annual change in employment rate. Here, low-skilled occupations havethe largest marginal effect among the three skill groups. A 1-percentage-point increase in local
trade exposure reduces the low-skilled employment rate by 1.89 percentage points.
In column (3), we find that all skill levels in non-manufacturing were able to receive
labour inflow in response to a rise in Chinese import penetration.46 However, they do so in avarying degree. Although high- and mid-skilled occupations experience reduction in theiremployment rate in manufacturing, they seem successful in achieving an equivalent degree ofrise in employment rate in non-manufacturing.47 For low-skilled occupations, negative demand
effects presumably prevent them from achieving enough rise in the employment rate in nonmanufacturing so that we see a statistically significant negative coefficient for them in column(1). Although it is not shown in our results, this also implies that we should observe an
equivalent rise either in their unemployment rate or the share of low-skilled population not in thelabour force.
Next, we present the results from estimating Equation (12) in which we assess theemployment effect by skill type. Based on column (1) in Table 15, we find that a 1-percentagepoint increase in annual local trade exposure reduces the change employment rate in production
occupations by -0.66 percentage points per year in all industries. The coefficient is highly
statistically significant. Interestingly, we find a positive relationship between local trade
exposure and employment rate for technical/paraprofessional.48 For other skill types, we find nostatistically significant effect of trade on their employment rate.
Column (2) reports the estimate for each skill type in manufacturing sector. Here, we
observe that all skill types except for professional are negatively affected by a trade shock. Most
notable is production occupations. They experience a decline of 1.47 percentage points per year
in response to a 1-percentage-point rise in import penetration. Column (3) shows that production
occupations have essentially no equivalent rise in employment rate in non-manufacturing sector
while other skill types do. This implies that the labour reallocation to production occupations in
unaffected sectors was completely inhibited by negative demand effects.

46

Based on the observation that all the coefficient in column (3) are positive, one can infer that none of the threeskill levels faced strong negative local demand effects such that they completely offset the positive effect of labour
reallocation.
47
Note that the coefficient for each skill group in non-manufacturing reflects the reallocation from not only the sameskill group but also the other skill groups in manufacturing. For example, a positive response of the employment
rate in mid-skill group in non-manufacturing could be driven by the employment being reallocated from low-, mid-,and high-skilled in manufacturing. The same logic applied to the analysis by skill type.
48
A decline in the employment rate in those occupations for manufacturing is more than offset by an increase in
non-manufacturing resulting in a positive marginal effect at the aggregate level (column 1). This indicates that a
trade shock might have induced previously unemployed workers to be re-employed in those occupations in nonmanufacturing or induced workers in those occupations to exit the labour force. In order to examine a more
complete mechanism, we would need data for labour force, unemployment rate, and out-of-labour-force by skill
type so that we assess the responses of four mutually exclusive categories (those three categories plus theemployment rate) with respect to a trade shock.

53

In summary, at the aggregate level, the labour reallocation from manufacturing to nonmanufacturing in response to a rise in import exposure was successful within local labour
markets. This is consistent with the findings in Murray (2017). However, the breakdown by skill
group reveals that not all occupations had a complete labour reallocation from affected sectors.
The reallocation to low-skilled in unaffected sectors (non-manufacturing) was partly inhibited by
local demand effects as they did not see an equivalent rise in the employment rate in nonmanufacturing in response to a rise in import exposure. By skill type, we find that thereallocation to production occupations in unaffected sectors appears to be completely inhibitedby demand effects operating within local labour markets.

54

Table 14: Effect of Import Penetration on Canadian Local Labour Markets, By Skill Level, 1991-2011: 2SLS Estimates
Employment Rate (all industries)

Manufacturing Employment Rate

Non-Manufacturing Employment Rate

CMA/CA import exposure x {Low-skilled}

(1)
0.09
(0.12)
0.07(0.22)-0.59***(0.23)(2)-0.33***(0.07)-0.78***(0.20)-1.89***(0.33)(3)
0.51**(0.24)
0.93**(0.40)
0.72*(0.37)

Obs.

1,464

732

732

CMA/CA import exposure x {High-skilled}
CMA/CA import exposure x {Mid-skilled}First-stage F statistics
1919.45
1877.93
1877.93
Note: For Column (1), the number of observation is 1,464 (122 CMA/CA's x two industries x three types of occupations x two time periods). For Column (2), (3),and (4), N=732 (122 CMA/CA's x three types of occupations x two time periods).The dependent variable is the annual percentage-point change in theemployment rate within a CMA/CA over the 1991-2001 and 2001-2011 periods. In columns (2) and (3), the dependent variable is the annual percentage-pointchange in the ratio of sectoral employment to the total working-age population within a CMA/CA over the 1991-2001 and 2001-2011 periods and for high-, mid-,and low-skilled occupations in each sector. In all specification, we include period, region dummies, and the locality's initial manufacturing employment shareinteracted with skill dummies. Standard errors in parentheses are clustered on 122 CMAs/CAs.
* p<0.10** p <0.05*** p<0.01

55

Table 15: Effect of Import Penetration on Canadian Local Labour Markets, By Skill Type, 1991-2011: 2SLS Estimates
Employment Rate
Manufacturing(all industries)
Employment Rate

Non-Manufacturing
Employment Rate

CMA/CA import exposure x {Production}

(1)
-0.01
(0.06)
0.08(0.08)
0.15*(0.08)
0.08(0.20)-0.07(0.10)-0.66***(0.15)(2)-0.24***(0.04)-0.02(0.03)-0.24***(0.07)-0.59***(0.10)-0.46***(0.10)-1.47***(0.31)(3)
0.21*(0.13)
0.19(0.15)
0.54***(0.17)
0.75*(0.40)
0.32*(0.18)
0.14(0.10)

Obs.

2,928

1,464

1,464

CMA/CA import exposure x {Management}
CMA/CA import exposure x {Professional}
CMA/CA import exposure x {Technical/Paraprofessional}
CMA/CA import exposure x {Other Services}
CMA/CA import exposure x {Trades/Construction/Transportation}

First-stage F statistics
1920.12
1879.27
1879.27
Note: For (1), the number of observation is 2,928(122 CMA/CA's x two industries x six types of occupations x two time periods). For (2), (3), and (4), N=1,464(122 CMA/CA's x six types of occupations x two time periods). The dependent variable is the annual percentage-point change in the employment rate within a
CMA/CA over the 1991-2001 and 2001-2011 periods. In columns (2) and (3), the dependent variable is the annual percentage-point change in the ratio ofsectoral employment to the total working-age population within a CMA/CA over the 1991-2001 and 2001-2011 periods and for occupation in the six skill groups
in each sector. In all specification, we include period, region dummies, and the locality's initial manufacturing employment share interacted with skill dummies.
Standard errors in parentheses are clustered on 122 CMAs/CAs.
* p<0.10** p <0.05*** p<0.01

56

Table 16: Implied Employment Changes Induced by Changes in Chinese Import Penetration, thousand, All Industries, Canada, thousand
Counterfactual ∆Actual ∆Implied Employment Effect
Skill Group(s)in employment levelin employment level1991200119911991200119911991200119912001
2011
2011
2001
2011
2011
2001
2011
2011
(1) All occupations

1,851.80

2,119.10

3,970.90

1,782.20

1,948.50

3,730.70-69.6-170.6-240.2High-skilled

756.9

767.2

1524.1

771.4

802.8

1574.2

14.5

35.6

50.1

Mid-skilled

416.9

776.2

1193.1

428.9

805.7

1234.6

12.0

29.5

41.5

Low-skilled

678.0

575.7

1253.7

581.9

340.0

921.9

-96.1

-235.7-331.8

Management

258.4

162.9

421.3

256.5

158.2

414.7

-1.9

-4.7

-6.6

Professional

385.3

578.9

964.2

371.9

611.8

983.7

-13.4

32.9

19.5

Technical/Paraprofessional

462.4

451.4

913.8

487.5

512.9

1000.4

25.1

61.5

86.6

Other services

391.0

689.3

1080.3

404.3

722.0

1126.3

13.3

32.7

46.0

Trades/Construction/Transportation

160.2

326.2

486.4

148.9

298.6

447.5

-11.3

-27.6

-38.9

(2) By Skill Level(3) By Skill Type

Production
221.3
-89.7
131.6
113.1
-355.0-241.9-108.2-265.3-373.5
Note: Counterfactual changes represent the changes in employment level if there had been no change in Chinese import penetration. Following Acemoglu et al.
(2016) and Murray (2017), the quantities in row (1) - row (3) is computed based on both statistically significant and insignificant coefficients from thecorresponding stacked models. Predictions for 1991-2011 is equal to the sum of the predictions for the two sub-periods.

57

2. Implied employment effects.
In this section, we summarize the implied employment effects computed based on theestimated coefficients analyzed in the previous section. Specifically, we assess the implied
employment effect by skill level and skill type based on Equation (13). They are reported inTable 16.
Starting with the aggregate implied employment effect in row (1) in Table 16, we findthat rising Chinese import competition reduced the employment by 240.2 thousand in allindustries in Canada during the 1991-2011 period.49 This total job loss is the result of losses of
69.6 thousand over the 1991-2001 period and 170.6 thousand over the 2001-2011 period. Thisimplies that if the rise in Chinese import competition after 2001 had not occurred, the total
employment across CMAs/CAs in Canada would have increased by 8.8 per cent more than it
actually did over the 2001-2011 period, assuming that all other factors are held constant.
As we show in Table 13, the labour reallocation to non-manufacturing was effective in
mitigating the decline in the employment rate in manufacturing. Row (1) in Table 17 shows thebreakdown by sector. Consistent with the results shown in Table 13, the job loss occurred in
manufacturing is largely offset by the job gain in non-manufacturing, indicating that the labour
reallocation was quite successful.
In row (2) and row (3), we report the estimated job losses broken down by skill level andskill type respectively based on the estimated coefficients in column (1) in Table 14 for the threeskill levels and in Table 15 for the six skill types.
Again, most of the Chinese import penetration occurred over the 2001-2011 period.
During that period, low-skilled occupations suffered a job loss of 235.7 thousand across allindustries in Canada due to Chinese import penetration. In other words, if Chinese importpenetration had been shut down during the 2001-2011 period, low-skilled jobs across
CMAs/CAs would have grew by 69.3 per cent more than it did in reality. We do not find any
trade-induced job loss in high- and mid-skilled occupations.
Row (2) in Table 17 reports the breakdown by sector for low-skilled group. As indicatedby the regression result in Table 14, a trade-induced job loss for low-skilled occupations in
manufacturing is not fully offset by a rise in non-manufacturing. During the period 2001-2011,
the total effect (direct + labour reallocation + demand effects) of rising Chinese importpenetration led to a loss of 379.1 thousand jobs in manufacturing. We observe that the loss is not
fully offset by a rise in non-manufacturing (a gain of 143.4 thousand). As a result, we see a job
loss of 235.7 thousand in all industries. Nevertheless, this still implies that labour reallocation
effect plays a role in mitigating the negative employment effect of trade on low-skilledoccupations at the aggregate level. Had there been no reallocation, the total job loss for lowskilled occupations would have been 37.8 per cent greater during the 2001-2011 period.

49

The quantity is computed based on the estimated coefficient reported in column (2) in Table 13.

58

As we emphasize in Section II, skill level and skill type are two different dimensions of agiven occupation. Therefore, analyzing the differential employment effect by skill type would
also have value-added. In row (3), we see that production occupations lost 265.3 thousand jobs intotal over the period in which Chinese import penetration took off. We estimate that had there
been no trade shock from China, there would have been only 89.7 thousand job loss in
production occupation in all industries across CMAs/CAs in Canada, instead of 355.0 thousand
loss.50
Table 17: Implied Employment Changes Induced by Changes in Chinese Import Penetration, selected skill
groups, Canada, thousand

Skill Group(s)(1) All occupations
ManufacturingNon-manufacturing(2) Low-skilled
ManufacturingNon-manufacturing(3) Production
Manufacturing

Implied Employment Effect (direct+labour reallocation+demand effects)
(1)
(2)
(3)
1991-2001
2001-2011
1991-2011-69.6-245.4-170.6-601.6-240.2-847.0

175.8

431.0

606.8

-96.1
-154.6-235.7-379.1-331.8-533.7

58.5

143.4

201.9

-108.2-119.6-265.3-293.3-373.5-412.9Non-manufacturing
11.4
28.0
39.4
Note: Counterfactual changes represent the changes in employment level if there had been no change in Chinese
import penetration. Following Acemoglu et al. (2016) and Murray (2017), the quantities in row (1) - row (3) iscomputed based on both statistically significant and insignificant coefficients from the corresponding stacked
models. Predictions for 1991-2011 is equal to the sum of the predictions for the two sub-periods.

Again, Table 17 reports the breakdown of the employment effect in production
occupations by sector. The regression results in Table 15 indicates that the labour reallocation to
production occupations was completely inhibited by demand effects operating within local
labour markets. Row (3) in Table 17 shows that a job loss in manufacturing is not at all offset bya rise in the employment in non-manufacturing. During the 2001-2011 period, production
occupations had a job loss of 293.3 thousand in manufacturing due to rising import penetration.
Non-manufacturing sectors did not see any meaningful rise in the employment for production
occupations during this period. Note that the coefficient for the employment rate in nonmanufacturing production is not statistically different from zero. Therefore, the small job gains
in non-manufacturing reported in Row (3) should be treated as zeros.
The reallocation to production jobs within local labour markets could be unsuccessful if
there is a relatively small number of production jobs outside manufacturing. Moreover, most of
the production jobs outside manufacturing are in primary industries such as agriculture, forestry,mining, oil and gas extraction. However, the reallocation to these sectors usually requires a
50

Additionally, we see a job loss of 27.6 thousand in trades/construction/transportation. A potential explanation forthis loss is that the decline in manufacturing may have led to a decline in the demand for services produced by thosein trades/construction/transportation. And this negative demand effect might have limited the reallocation of workers
in trades/construction/transportation from manufacturing to non-manufacturing.

59

migration to other provinces as these sectors tend to be in a particular region. If displaced
production workers migrated to other provinces to be employed in those sectors, this is not
captured in our framework. Therefore, the reallocation to production within local labour markets
might appear to be unsuccessful.
Table 18-1: Regional share in the total manufacturing employment by skill type, 2001, per cent
Trades/Technical
Other
Construction/
Total Management Professional Paraprofessional services Transportation
Atlantic region
2.5
2.7
2.2
2.2
2.8
2.9
Quebec
26.4
24.4
28.3
28.2
29.6
24.2
Ontario
51.3
52.3
52.1
51.6
46.6
49.9
Prairie region
11.0
10.7
10.1
10.2
11.9
13.4
British Columbia
8.7
10.0
7.2
7.8
9.2
9.5
Northern region
0.0
0.0
0.0
0.0
0.0
0.0

Production
2.3
26.1
53.7
9.7
8.2
0.0

Table 18-2: Manufacturing share in the total regional/provincial employment, by skill type, 2001, per cent
Trades/Technical
Other
Construction/
Total Management Professional Paraprofessional services Transportation Production
Atlantic region
7.1
6.4
0.8
5.9
3.0
13.1
47.3
Quebec
16.0
13.4
2.4
14.4
7.5
23.4
76.3
Ontario
15.4
12.4
2.4
13.8
6.0
23.2
70.7
Prairie region
9.1
7.7
1.3
7.5
4.0
14.9
46.6
British Columbia
8.6
8.1
1.1
6.8
3.7
14.5
48.6
Northern region
1.2
0.9
0.0
0.9
0.2
3.8
13.7

To further examine the above explanation, one should focus on Ontario and Quebec. First,
note that Ontario and Quebec account for about 65 per cent of the total employment in Canada;
63 per cent of the total non-manufacturing employment; and 77 per cent of the total
manufacturing employment. Table 18-1 shows the regional/provincial share of the total
employment in manufacturing by skill type. Ontario and Quebec, not surprisingly, accounted fornearly 80 per cent of the employment across all skill types in 2001. Therefore, the estimatedmarginal effects of rising import penetration reported in Table 13-15 are largely driven by those
two provinces. Of the total implied employment effect in Canada during the 1991-2011 period,
79.3 per cent is attributed to the two provinces (see Appendix Table A3 and A3-1).
Table 18-2 report the manufacturing share in the employment by skill type and byprovince. Within those two provinces, manufacturing accounts for about 71 per cent to 76 percent of the total production employment in 2001.51 This is in contrast with the other provinces
and regions where manufacturing accounts for 13 per cent to 48 per cent of theprovincial/regional production employment. Hence, displaced manufacturing workers in thesetwo provinces are less likely to get production jobs in unaffected sectors (i.e. non-manufacturing)
within local labour markets relative to other provinces since most of the production jobs were in
manufacturing.

51

This is due to the fact that many automobile manufacturers were located in ON and QC.

60

Displaced workers can migrate to the other provinces to be re-employed but this is not
captured in our framework. This is more likely to be the case for the displaced manufacturing
workers looking for production jobs in Ontario and Quebec since the two provinces reliedheavily on manufacturing sectors with large shares in total production employment (e.g. auto andauto parts sectors). Across-localities labour reallocation could have been successful for
production occupations. Hence, we may be missing a considerable amount of across-localities
reallocation.
In summary, we find that within-locality labour reallocation was somewhat successful at
the aggregate level. However, there are variations in the degree of labour reallocation acrossdifferent skill groups. We find that low-skilled occupations across CMAs/CAs received asignificant negative employment effect from Chinese import competition but the effect was only
partially mitigated by labour reallocation. In contrast, the labour reallocation to production
occupations in non-manufacturing appears to be fully offset by local demand effects. The
negative employment effects we find earlier on technical/paraprofessional and other services inmanufacturing disappear at the local level due to the positive labour reallocation effect. The key
message we would like to present is that the job loss due to Chinese import competition was notequally distributed across workers with different skills due in part to a varying degree of labour
reallocation.

VII.

Conclusion

This report estimates the impact of the Chinese import shock on Canadian labour markets
over the period 1991-2011. By constructing a measure of occupation-specific trade exposure, we
focus on differential employment effect across distinct occupational groups both withinmanufacturing in Canada and the broader industrial sectors within CMAs/CAs. An instrumental
variable strategy is employed to deal with potential endogeneity of Canada trade exposure. Thisway, we capture the causal impact of Chinese import penetration on Canadian employment.
Using four-digit occupations in National Occupation Classification (NOC) as the unit ofanalysis, we find that the direct effect of rising Chinese import competition in Canada was thelargest for low-skilled and production occupations over the full 1991-2011 span. Rising Chinese
import penetration accounted for 166.2 thousand jobs in low-skilled occupations (or 76.9 percent of the total decline in the low-skilled employment in manufacturing). Production
occupations exhibited a loss of 101.9 thousand due to rising Chinese import penetration. Had
there been no China shock (with other factors held constant), then we would have seen an
increase of 44.0 thousand (instead of a decline of 57.9 thousand) in the production employment
in manufacturing. Occupations in other services also had a large job loss - 96.0 thousandaccounting for 46.6 per cent of the actual decline in the employment for that group.
Over the period in which Chinese import penetration rose significantly (i.e. 2001-2011),
we estimate that a trade-induced job loss amounts to 113.5 thousand jobs in manufacturing.
Within manufacturing, rising Chinese import penetration had particularly large negative
employment effects on:61

Low-skilled occupations - a loss of 89.8 thousand low-skilled jobs (or 26.9 per cent of thetotal decline in low-skilled jobs)

Occupations in other services – a loss of 57.6 thousand (86.9 per cent of the total decline
in other services).

Occupations in technical/paraprofessional - a loss of 19.5 thousand (59.9 per cent of thetotal decline in technical/paraprofessional)Occupations in production – a loss of 51.8 thousand (16.9 per cent of the total decline inproduction)

By exploiting variations in local employment rates and local trade exposure across 122
CMAs/CAs in Canada, we also assess the effects of labour reallocation and demand effects
operating within localities. We find that the labour reallocation is proved important in offsetting
the negative direct effects but the degree of reallocation within local labour markets varies acrossskills. The labour reallocation to unaffected sectors was less successful for low-skilledoccupation when analyzed by skill level and for production occupations when analyzed by skill
type.
Our results indicate that trade did not play a role in "employment polarization" in Canada.
For example, the United States experienced a strong U-shaped employment growth in skill level.
Autor and Dorn (2013) argue that among the other factors, non-neutral technological progressmight have led to such polarization as low-skilled workers reallocate their labour supply fromgoods (involving routine tasks) to services while high-skilled workers remain where they wereleaving employment growth for mid-skilled relative low. This was not the case when we analyze
the employment effect of trade exposure.
Our report has focused on a distributional effect of rising Chinese imports to Canada:differential employment effects across different skill levels and skill types. Policymakers should
also pay attention to potential benefits from trade as much as we do to distribution concerns oftrade. Costs should be set against benefits in a balanced and principled manner so that one canunderstand the full picture on trade. Lastly, we want to emphasize that rising Chinese importcompetition is only one factor contributing to the broad trend in the contracting manufacturing
employment. Hence, other factors should be given an equal weight when one analyzes the trend.
We conclude our report by suggesting some ideas for future research directions. First,
previous studies show that China does not invent technologies and high-tech products themselves.
Instead, the country establishes quite efficient workshops for manufacturing other countries'
innovations. Most of the value-added is done not in China but elsewhere such as the UnitedStates. Take a famous example of Apple. In 2010, China contributed only 1.8 per cent of thevalue of an Apple iPhone and 2 per cent in iPad. This implies that China accounted for $10 and$8 per unit, which sold in the United State for $549 and $499, respectively (Kraemer et al.,2011). This observation is not limited to Apple. Across all types of exports, China contributed
just over half of the total value. In exports of electronics and IT, Chinese domestic value-added62

drops to only 15 per cent of the total values (Branstetter and Lardy, 2008; Man et al., 2013,
Koopman and Wang, 2008). Since Canada may be contributing some value-added in exported
goods from China, it may be misleading to argue that Chinese rising exports to Canada had anegative impact on employment. Further research in this regard is warranted.
Secondly, the effect of the Chinese import penetration may go beyond an effect on
employment. For example, it would be useful to assess the effect of the China shock on wages byskill group. Wage effects at the industry-level might be quite different from the effects found at
the occupation-level as shown in Ebenstein et al. (2015).
Another important factor is innovation. Recently, Autor et al. (2017) find that rising
import competition from China induced a fall in firm-level and technology class-level patentproduction in United States. They also find that firms tend to scale back their global R&D
spending in response to the China shock. On the other hand, Bloom . (2016) find that, in Europe,
greater import competition from China is associated with higher firm patenting and expanding
investment in information technology. Estimating the relationship between the two variables for
Canada would be interesting.

References
Acemoglu, Daron, David H. Autor, David Dorn, Gordon H. Hanson, and Brendan Price (2016)"Import Competition and the Great US Employment Sag of the 2000s," Journal of Labor
Economics, Vol. 34, No. S1, Part 2, pp. S141-S198
Autor, David H., David Dorn and Gordon H. Hanson (2013) "The China Syndrome: Local Labor
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64

VIII.

Appendix: Additional Tables and Charts

Table A1: Total Shipments, Total Domestic Absorption, and Import Penetration, Manufacturing (NAICS
31-33), Canada, 1992-2015
Domestic Absorption (Millions of CAD)
Total Domestic
Total Sales
Net Exports
Absorption

Import Penetration (%)
All Countries

China

1992

280,518-6,194

286,712

45.7

0.8

1993

303,943-2,870306,813

49.3

1.0

1994

346,941-3,419350,360

52.1

1.1

1995

389,779

8,597

381,182

53.1

1.2

1996

400,085

12,424

387,661

53.2

1.2

1997

426,519-7,347433,866

56.2

1.4

1998

441,153-14,524455,677

59.4

1.6

1999

510,550-5,934516,483

56.7

1.7

2000

561,301-1,877563,178

57.0

2.0

2001

543,272-140

543,412

56.4

2.3

2002

559,903-8,200568,103

55.2

2.8

2003

563,634-12,306

575,940

51.8

3.2

2004

582,563-4,489587,052

53.5

4.1

2005

599,206-15,873615,079

53.8

4.7

2006

605,527-27,891

633,418

54.3

5.4

2007

597,673-32,593630,266

55.6

6.0

2008

591,970-58,989

650,959

55.5

6.5

2009

488,731-76,011564,741

55.1

7.0

2010

529,275-81,389

610,664

55.8

7.2

2011

568,282-93,440

661,722

56.3

7.2

2012

585,336-100,191

685,526

56.8

7.3

2013

587,645-110,701

698,347

57.9

7.5

2014

618,593-121,799

740,393

59.4

7.9

2015

608,323-122,064

730,38764.5

8.9

Growth Rates:

Per cent per year

1992-2015

3.4

1992-2000
2000-2008
2008-2015

Percentage-point change

-13.8

4.1

18.8

8.1

9.1

13.9

8.8

11.3

1.1

0.7

-53.9

1.8

-1.6

4.5

0.4

-10.9

1.7

9.1

2.4

2001-2011
0.5
-91.7
2.0
0.0
4.9
Note: Total domestic absorption = Total shipments - net exports. Import penetration ratio = 100 x Imports/Domestic
absorption.
Source: Table 3 in Murray (2017)65

Table A2: Occupation group classification, skill level and skill type(1)
Skill TypeManagement

Professional

Technical andparaprofessional(2)
Stats Can/HRSDC
re-classification

Management

Professional

Technical andparaprofessional

Administration andadministrative
supportOther services
Sales

Personal and(3)2-digit NOC(4)
Skill Level

00 Senior management occupations
01-05 Specialized middle management
occupations
06 Middle management occupations inretail and wholesale trade and customer
services
07-09 Middle management occupations in
trades, transportation, production andutilities
11 Professional occupations in businessand finance
21 Professional occupations in natural andapplied sciences
30 Professional occupations in nursing
31 Professional occupations in health(except nursing)
40 Professional occupations in education
services
41 Professional occupations in law andsocial, community and government
services
51 Professional occupations in art andculture22 Technical occupations related tonatural and applied sciences
32 Technical occupations in health
42 Paraprofessional occupations in legal,social, community and education services
43 Occupations in front-line public
protection services
52 Technical occupations in art, culture,
recreation and sport
12 Administrative and financial
supervisors and administrative
occupations
13 Finance, insurance and related businessadministrative occupations
14 Office support occupations
15 Distribution, tracking and schedulingco-ordination occupations
62 Retail sales supervisors and specialized
sales occupations
64 Sales representatives and salespersons- wholesale and retail trade
66 Sales support occupations
63 Service supervisors and specialized
service occupations
65 Service representatives and othercustomer and personal services
occupations
67 Service support and other service

Skill level A
Skill level A

66

Skill level A

Skill level A

Skill level A
Skill level A
Skill level A
Skill level A
Skill level A
Skill level A

Skill level A
Skill level B
Skill level B
Skill level B
Skill level B
Skill level B
Skill level B

Skill level B
Skill level C

Skill level B
Skill level C
Skill level D
Skill level B
Skill level C

Skill level Dcustomer
information
services

Industrial,construction andequipment
operation trades
Trades,construction, andtransportation
Workers andlabourers intransport andconstruction

Natural resources,
agriculture andrelated production
occupations

occupations, n.e.c.
34 Assisting occupations in support ofhealth services
44 Care providers and educational, legal
and public protection support occupations
72 Industrial, electrical and construction
trades73 Maintenance and equipment operation
trades74 Other installers, repairers and servicers
and material handlers
75 Transport and heavy equipment
operation and related maintenanceoccupations
76 Trades helpers, construction labourers
and related occupations
82 Supervisors and technical occupationsin natural resources, agricultural andrelated production
84 Workers in natural resources,
agriculture and related production
86 Harvesting, landscaping and natural
resources labourers

Skill level C
Skill level C
Skill level B
Skill level B

Skill level C
Skill level C

Skill level D

Skill level B

Skill level C
Skill level D

Production
92 Processing, manufacturing and utilities Skill level B
supervisors and central control operators
Occupations in
94 Processing and manufacturing machine Skill level C
manufacturing and operators and related production workers
utilities
95 Assemblers in manufacturing
Skill level C
96 Labourers in processing,
Skill level D
manufacturing and utilities
Note: We choose to display 2-digit occupations due to the space limit. In this report, we re-classify
individual 4-digit occupations belonging to each of the 2-digit occupations according to column (1)and column (4). In column (1), we aggregate the ten skill types in column (2) to have six types.
Source: Column (2)-(4) are based on a variant of NOC available at Statistics Canada website.
http://www.statcan.gc.ca/eng/subjects/standard/noc/2011/index

67

Table A3: Implied employment effect of rising Chinese import penetration to regional labour markets, byregion/province, thousand, all industries, 1991-2011
Rest of
Atlantic
Prairie
BritishNorthern
Canada Ontario Canada
regionQuebecregionColumbia
region1991-2001-69.5

2001-2011-170.6

-33.3

-36.2

-1.2

-22.8

-5.5

-6.7

0.0

-83.5

-87.1

-3.6

-50.8

-17.3

-15.3

0.0

1991-2011 -240.1-123.3
-4.8
-73.6
-22.8
-22.0
0.0
-116.8
Note: Implied employment effect include not only the direct effect of rising Chinese import penetration but also
indirect effects (within-locality labour reallocation and local demand effects).

Table A3-1: Regional share in total implied employment effect in Canada, per cent, all industries, 1991-2011
Atlantic region

QuebecOntario

Prairie region

British Columbia

Northern region

1991-2001

1.7

32.8

47.9

7.9

9.6

0.0

2001-2011

2.1

29.8

48.9

10.1

9.0

1.0

1991-2011
2.0
30.7
9.5
9.2
2.0
48.6
Note: Implied employment effect include not only the direct effect of rising Chinese import penetration but also
indirect effects (within-locality labour reallocation and local demand effects).

68