The impact of trade policy uncertainty on labour demand elasticity: evidence from China

Renyu Li, Yan Luo and Tenglong Zhong

Applied Economics Letters, 2023, vol. 30, issue 19, 2717-2724

Abstract: Research on the effect of trade on labour demand elasticity is rich, but lacks studies on the effect of trade policy uncertainty. Using firm-level labour demand elasticity data from China, this paper supplements current research by presenting evidence for the impact of trade policy uncertainty on labour demand elasticity. Using the granting Permanent Normal Trade Relations (PNTR) status by the US to China as a quasi-natural experiment, this paper constructs a difference-in-differences model. The empirical results show that a reduction in trade policy uncertainty following the grant of PNTR status significantly reduces labour demand elasticity in China. The decrease in trade policy uncertainty thereby improves employment stability. This paper reveals the importance of cultivating a stable international trade policy environment for stabilizing the domestic job market.

Date: 2023
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DOI: 10.1080/13504851.2022.2104800

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