Bilateral Effects of the Digital Economy on Manufacturing Employment: Substitution Effect or Creation Effect?

Chenhui Ding, Xiaoming Song, Yingchun Xing () and Yuxuan Wang
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Chenhui Ding: Business School, Hohai University, Nanjing 211100, China
Xiaoming Song: Business School, Hohai University, Nanjing 211100, China
Yingchun Xing: Department of Postal Communication Management, Shijiazhuang Posts and Telecommunications Technical College, Shijiazhuang 050021, China
Yuxuan Wang: Business School, Hohai University, Nanjing 211100, China

Sustainability, 2023, vol. 15, issue 19, 1-22

Abstract: Understanding the substitution effect and creation effect of digital transformation on the manufacturing industry is crucial to safeguarding employment stability and advancing manufacturing sophistication in China’s contemporary context. In this study, a bilateral stochastic frontier model is used to examine the aforementioned effects drawing on provincial panel data of China spanning 2011 to 2020. The study reveals that: Firstly, the substitution effect of digital economy development on manufacturing employment outweighs the creation effect, culminating in a 7.80% decrease below the frontier benchmark, contrasted by a 4.15% increase attributed to the creation effect. The two effects possess an inverse relationship, collectively inducing a 3.66% decline in manufacturing employment as compared to the frontier. Secondly, the prevailing influence of the digital economy upon manufacturing employment is predominantly characterized by the substitution effect. However, projected medium to long term trajectories intimate a diminishing potency of this substitution effect and the creation effect will become more pronounced. Thirdly, in terms of geographical areas, the weakening of the employment-substitution effect due to the digital economy is most evident in the central region, followed by the western, and then the eastern regions. Conclusively, the impact of the digital economy on manufacturing employment exhibits variances contingent upon distinct economic maturation and disparate human capital stratification.

Keywords: digital economy; manufacturing employment; bilateral stochastic frontier model; substitution effect; creation effect (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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