Trade Liberalization and the Skill Premium in China: Evidence from Individual-Level Panel Data

This paper examines whether trade liberalization raises or lowers the skill premium in China. Using individual-level panel data from the China Health and Nutrition Survey (CHNS), we exploit the 2008 global financial crisis as an external shock to trade and combine it with cross-provincial differences in pre-crisis trade dependence in a triple-difference framework. The results show that provinces with greater pre-crisis exposure to international trade experienced a larger post-crisis decline in the skill premium. This pattern implies that stronger trade liberalization is associated with a higher skill premium. The effect is more pronounced among younger and male workers and among workers employed in urban areas, non-state-owned enterprises, and smaller firms. The evidence also points to two channels: a contraction in skill-intensive industries and post-crisis fiscal expansion tilted toward unskilled labor demand. These findings provide new evidence on how trade shocks shape wage inequality and human capital incentives in a major developing economy.