Agglomeration Externalities and Skill Upgrading in Local Labor Markets: Evidence from Prefecture-Level Cities of China

Skill upgrading, the increase in the percentage of skilled workers in the employment population, boosts the economic growth of developing countries and sustains their industrial competitiveness. The international economics literature discusses the effects of international trade on skill upgrading, ignoring the potential role of agglomeration externalities. This paper takes China as a case study, which has been encountering a serious challenge about how to strengthen its industrial competitiveness in the world through skill upgrading as its population dividend decreases. The panel data of 2005, 2010 and 2015 from prefecture-level cities in China were used for regression analysis to explore the benefits from agglomeration externalities, including specialization and diversification effects, on skill upgrading. The results show that both the specialization effect and diversification effect do promote skill upgrading. Furthermore, there are significant differences in the influence of local agglomeration externalities across different regions, and the positive effect brought about by specialization externalities is usually dominant in undeveloped, inland or small cities, compared with the diversification in developed or coastal cities. Besides, manufacturing agglomerations exhibit positive externalities to skill upgrading mainly through specialization, while the service agglomerations mainly promote skill upgrading by means of diversification.

Within and between firm trends in job polarization: the roles of globalization and technology

We analyze occupational polarization within and across firms using a census of matched employer–employee panel data from Finland in the period of 2000–2014. As in most industrialized countries, the Finnish occupational distribution has polarized over the last decades. Using decomposition analysis, we find that jobs involving low-level service tasks increase mostly through the entry dynamics, while the high-level abstract task share increases largely within continuing firms. Worker-level occupational mobility points to some skill upgrading within continuing firms, while labor force entry and retirement contribute the polarizing trend. Instrumental variables (IVs) regressions confirm that this occupational restructuring is affected by the globalization of economic activity, including trade in goods and services, offshoring and outsourcing. For example, firms that outsource tasks abroad are more prone to lay off production workers, while domestic outsourcing leads to a reduction of both cognitive and service employees.