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The FDI liberalization and skill structure of labor market in China: The predicament of migrants

Li, Yifan and Miao, Zhuang and Wang, Junbo and Zhang, Yan (2023): The FDI liberalization and skill structure of labor market in China: The predicament of migrants.

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FDI and EDU Jul 11 FINAL Version MIAO revision.pdf

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Throughout the era of China’s accession to World Trade Organization (WTO), the labor market and education dynamics have been significantly impacted by the surge in foreign direct investment (FDI). This study scrutinizes how these factors interplay, with emphasis on migrants’ educational attainment, skill premium, and employment status. Our empirical evidence suggests that while FDI bolsters the relative demand for high-skill labors, it concurrently enhances education premiums and the educational attainment in general. Nevertheless, an intriguing anomaly emerges with the downward trajectory of migrants' educational levels. This counterintuitive phenomenon is primarily driven by the double-edged predicament of employment discrimination against high-skill migrants and the sluggish growth in demand for their employment. Empirical analysis further reveals that the FDI liberalization period witnessed an insignificant rise in migrants’ educational premiums, thereby predisposing them to low-wage or high-hazard positions. Our quantitative simulation shows that migration workers will improve their educational levels by 16% by migrating to the higher FDI-exposed region, and improve 4% by removal of the employment discrimination toward the migrants. Our study contributes to the understanding labor market structural shifts and migrant employment conditions in China during its WTO accession period. Additionally, it provides insights for policy-making geared towards the equitable distribution of FDI benefits.

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