Trade Expansion and Employment Generation: How Mercantilist Does China Have to Be?

We conduct an input-output analysis of China’s employment changes due to changes in trade structure on sectoral level. We find that between 2002 and 2007 China generated about 71 million jobs due to trade expansion. We also estimate the additional amount of trade that would be needed if China were using trade surplus as the main tool to absorb its excess labor. We find that given the enormous magnitude of this estimated amount, this “mercantilist” approach to excess labor absorption is not feasible. Finally, using Spearman rank correlation analysis, we find that the ranking of China’s sectors’ employment generation capacities is inversely related to the ranking of these sectors’ trade performances. This suggests that the “mercantilist” approach to excess labor absorption is not only infeasible but also inefficient. We end the paper by suggesting a more balanced growth path for China.